Senior industry representatives were called by Seth to explain the regulator’s thinking behind the proposed distribution reforms and discuss its concerns about the sector.
Insurers said the bundling restrictions could make high-volume, low-ticket distribution commercially difficult, particularly for policies requiring extensive last-mile servicing.
The proposed caps are below prevailing industry rates across several segments.
Term insurance commissions, for instance, could be capped at 30 per cent for individuals and 25 per cent for corporate distributors, against up to 51 per cent currently.
The proposals, which also tighten rules on indirect distributor payments and increase disclosure requirements, could alter the economics of insurance distribution, particularly for banks and other large corporate distributors.
Senior industry representatives were called by Seth to explain the regulator’s thinking behind the proposed distribution reforms and discuss its concerns about the sector. According to a senior insurance executive, the initiative is welcome and is in the right direction. Irdai shared its thought process behind the proposals, while the industry put forward suggestions around the need for a glide path for reducing commissions and differentiated treatment for insurers of different sizes under the EoM framework.
“The initiative is definitely in the right direction. However, distribution costs and commissions need to be rationalised. Changes should recognise the actual cost of distribution and the work undertaken by intermediaries. There is a case for a glide path both for commissions and the EoM limit. Otherwise, the sharp reduction in commissions is likely to have an impact on both the industry’s growth and penetration. For general insurance companies, achieving the EoM limits will be more difficult. The official view from the councils might come in the next two or three days,” said another senior industry official.
The industry also sought reconsideration of the proposed norms on group credit life insurance, particularly the restriction on bundling such policies with lending products, arguing that they provide insurance cover to borrowers. Insurers said the bundling restrictions could make high-volume, low-ticket distribution commercially difficult, particularly for policies requiring extensive last-mile servicing.
Irdai last Wednesday proposed a broad overhaul of insurance distribution economics, cutting EoM limits and introducing product- and channel-specific commission caps, with separate ceilings for individual and corporate distributors and higher limits for individuals to reflect the greater effort involved in sales.
The proposed caps are below prevailing industry rates across several segments. Term insurance commissions, for instance, could be capped at 30 per cent for individuals and 25 per cent for corporate distributors, against up to 51 per cent currently. Health insurance commissions could be capped at 20 per cent and 15 per cent, respectively, versus 24 per cent currently, while motor and savings products could see caps of 0-15 per cent and 5-25 per cent, compared with prevailing rates of 26 per cent and 14-37 per cent, respectively. The proposals, which also tighten rules on indirect distributor payments and increase disclosure requirements, could alter the economics of insurance distribution, particularly for banks and other large corporate distributors.
The market reacted sharply last week to the proposed cuts, with shares of major online distributors such as PB Fintech and Turtlemint correcting sharply, while most large insurers also saw their stocks decline.
According to analysts, the proposals could result in commission cuts of nearly one-third to half across new life, health, and motor insurance, with lower caps for banks and brokers than for individual agents.
The changes are likely to affect insurance brokers, banks and non-banking financial companies (NBFCs) more than individual agents, potentially weighing on bancassurance-heavy insurers and those reliant on open-architecture distribution models. Insurers with a larger agency base may be relatively less affected, they said.
Industry insiders feared the steep reduction in distributor commissions could trigger consolidation among brokers, squeeze bancassurance and corporate agency channels, and weigh on insurance growth in the near term.
