Page 51 - Insurance Times May 2023

IRDAI removes the cap on commission payment

to Insurance Agents: Is it a good move?

he Insurance Regulatory & Development Board Similarly, the EoM ceiling for general insurers is 30% of the
T of India (IRDAI) has removed the limit on annual premium and for standalone health insurers it is 35%
commission payments to be made to agents,
of the annual premium with additional expenses subject to
brokers, and other intermediaries of both; life
and non-life insurance. This move provides insurers with certain conditions. However, this does not include expenses
related to the rural sector, Pradhan Mantri Suraksha Bima
greater flexibility in managing their expenses by replacing Yojana, Pradhan Mantri Fasal Bima Yojana, and costs
the previous cap on commission payments with a board- associated with Insurtech and insurance awareness
approved cap. These regulatory changes were announced initiatives. Insurers must also follow a commission structure
on March 28, 2023, and they will be effective from April 1, approved by the board from April 1, 2023, meaning that
2023. they must receive approval from their board on the
commission structure of intermediaries within 45 days of
Nonetheless, insurers must ensure that they stay within the each financial year.
Expense of Management (EoM) limit that they are obligated
to follow. EoM is determined as a portion of the premiums While currently the agents, brokers, and other
received and comprises commissions as well as other intermediaries have lower limits on the EoM, life insurance
expenses such as employee costs, technology expenditures, companies come up with methods to provide extra
administrative expenses, and similar costs. incentives to their agents through competitions, gifts,
foreign vacations, and other similar rewards. However, now
IRDAI has increased the management expenses for insurers, the regulator has notified that there will be no additional
which will allow them to pay commissions of up to 100% of incentives for agents/brokers. IRDAI has clarified that it will
the total premium. For life insurance, the EoM limits are cease payment of rewards after the implementation of
based on product categories. As per the new regulations, these policies.
under the pure risk product category, such as regular
premium term insurance policies with tenures of over ten The IRDAI states that these changes are likely to bring
years, the EoM limit will be 100% of the first-year premium. about greater flexibility in product innovation and help
The expenses on renewal premiums can go up to 25%. For increase insurance penetration across the country. The
traditional policies such as whole life, money back, and insurance industry is looking forward to a significant reform
endowment policies, the maximum limit is 80% of the first- by IRDAI. This is indeed good news for insurance agents and
year regular premiums and 17.5% during renewals. For brokers, and they expect it to have a favourable impact on
single premium policies and annuity products, the maximum the sector.
limit for life insurers is 5% of the total premium with
additional expenses based on criteria such as allowance for Since the regulator has directed insurance companies to pay
head office expenses and Insurtech and insurance the commission to their agents/brokers from their
awareness. management expenses and they cannot charge the

46 May 2023 The Insurance Times