IRDAI said that removal of cap on commission of insurance intermediaries like agents and brokers will make insurance policies more affordable for people.
Further, the insurance regulator said that the move will give more flexibility to insurers to incentivize efforts of their agents and intermediaries.
IRDAI said, “For commissions, the maximum limits as specified in the current regulations are proposed to be removed with commissions being linked to the overall limit of expense of management. This will enable insurers to devise commission structures incentivizing the intermediaries in line with their solicitation efforts and also making insurance more affordable.”
Recently, IRDAI has issued a draft guideline on payment of commission in which it has done away with the cap on payment of commission. However, it has advised insurance companies to pay commission within the expense of management.
According to IRDAI’s proposals, insurers can charge up 100% of the annual premium in the first year on term policies with premium payment term of over 10 years. The expense on renewal premiums can go up to 25%.
For traditional policies like whole life, money back and endowment policies, insurers can charge expenses of up to 80% in first year and 17.5% during renewals.
For single premium policies and annuity products, life insurers can charge up to 5% of the total premium with additional expenses based on a few criteria like allowance for head office expenses and insurtech and insurance awareness.
Similarly, general insurers can charge up to 30% of the annual premium and standalone health insurers can charge up to 35% of the annual premium with additional expenses subject to fulfilment of certain conditions.
Further IRDAI said, “IRDAI’s mission of protection of policyholders’ interest and orderly growth of the insurance sector is always a priority. Efforts are made to reach the last mile by strengthening the entire ecosystem. A periodic review of the regulatory framework will be a continuous exercise to ensure that it is in sync with the emerging trends and dynamics of market and serves the intended objective of ‘Insurance for All’.”