The Insurance Regulatory and Development Authority of India (IRDAI) has issued a warning to insurance companies regarding escalating commission payouts, citing concerns that these payouts are driving up premiums for consumers.
IRDAI’s Concerns
The regulator has urged both health and general insurance providers to effectively manage their commission structures. Failure to do so, according to sources cited by CNBC-TV18, may lead to stricter regulatory actions in the future. Insurance companies utilize commissions to incentivize agents, distributor banks, and other intermediaries for the solicitation and procurement of insurance policies.
In 2023, IRDAI had removed limits on commission payments to intermediaries allowing firms greater flexibility in managing their expenses. However, the regulator now perceives that the increased commissions are directly contributing to higher insurance premiums for policyholders.
IRDAI has requested general and life insurance companies to lower their commission payouts and subsequently pass on the cost savings to their customers. If the companies do not comply with the request, it may result in the re-imposition of limits on commission payouts during the next Expenses of Management (EoM) review cycle.
Survey Findings
A recent LocalCircles survey conducted in February indicated that over two-thirds of health insurance policyholders have experienced a cumulative increase of 50-200% in their premiums over the last three years. The survey, which gathered over 35,000 responses across 329 districts in India, also revealed that 52% of personal health insurance policyholders saw their premiums rise by more than 25% in the past year.
This action by IRDAI reflects a shift from the 2023 regulatory stance, which aimed to provide insurers with greater flexibility in expense management. However, the current assessment underscores the need for a balance between agent compensation and the affordability of insurance products for consumers.
