Product-wise insurance commission cap removed by IRDAI

Insurance regulator IRDAI has removed the product-wise cap on commission payable by Life, General and standalone health insurers to intermediaries and instead notified that such payments will come under the expense of management (EOM) limits.

• The commission payable by insurers to insurance agents or insurance intermediaries should not exceed the EOM limits specified.
• Health insurance policies offered by Life and General insurance companies will also come under the ambit of the new regulations 

Objective:

• Flexibility: Objective of the new regulation on commissions is to provide insurers flexibility to manage expenses based on their growth aspirations and ever-changing insurance needs in the backdrop of improving insurance penetration.
• Enhance the responsiveness: It also intended to enhance the responsiveness of the regulation to market innovation, and facilitate the insurers in development of new business models, products, strategies, internal processes and enable easy compliance. 

Significance:

• The shift from product-level commissions to a company-wide limit of expenses, as proposed, will ensure parity across varying business models while rendering greater flexibility in managing expenses for insurers.
• With majority of the insurers above prescribed norms of expenses and with the industry reeling with a combined ratio of more than 118%, the EOM limits will help in bringing cost discipline, translate into better pricing and products for customers in the medium to long term.