Page 37 - Insurance Times December 2022

IRDAI draft norms do away with

specific caps on commissions
After consultations with the insurance industry, the regulator
has done away with the specific caps on commissions to agents
and intermediaries that it had proposed in an exposure draft
in August.

Instead, it has suggested that the commissions paid by
insurance companies, both life and non-life, should not exceed
the expense of management (EoM) limits specified under the
respective regulations framed for life and non-life industry.

In the earlier version of the draft, the Insurance Regulatory
and Development Authority of India (Irdai) had proposed that
the maximum commission payable under general insurance
products, including health insurance products offered by
general insurers, should not exceed 20 per cent of the gross
premium written in that financial year. The same limit was
proposed for health products sold by standalone health
insurers.

However, in the revised draft, the regulator has said the
commission payable under general insurance products,
including health insurance products offered by general insurers
and health insurance products by standalone health insurers,
should not exceed the EoM limits specified by the regulator.
Under the revised EoM guidelines, which will come into effect
from April 1, the regulator has proposed a limit of 30 per cent
of gross written premium written in that financial year as EoM
limit for general insurers and 35 per cent in case of standalone
health insurers.

The existing EoM limits are based on the business segment and
volumes, and a blended EoM cap would work out to be around
31 per cent for multi-line general insurers and around 33 per
cent for standalone health Insurers. The current commission
and rewards put together entail approximately 18-19 per cent,
except the motor TP line, wherein commission rates are nil in
the first three years and 2.5 per cent thereafter.

When it comes to life companies, the previous draft proposed
to link commissions to EoM, wherein if the actual EoM in the
previous financial year is not exceeding 70 per cent of the
allowable EoM limits then life insurers can adopt commission
limits as approved by its board. But, if the EoM is exceeding
70 per cent of the allowable limits, then the insurer must
adhere to caps on commission proposed by the regulator.
(Source: Business Standard)

The Insurance Times December 2022 33