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There is good news for the insurance intermediaries like agents and brokers. IRDAI has done away with the cap on payment of commission.
However, the insurance regulator has asked insurers to pay commission within the expense of management. Subsequently, IRDAI has hiked expense of management for insurers that will give insurers a leeway to pay up to 100% of the total premium as commission.
According to the new norms, 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.
Also, insurers will have to follow a board approved commission structure from April 1, 2023. Simply put, they will have to get approval from their board on commission structure of intermediaries within 45 days of each financial year.
However, there will be no additional rewards to agents/brokers. IRDAI clarified that it will discontinue payment of rewards post the implementation of these policies.
IRDAI said that removal of cap on commission of insurance intermediaries like agents and brokers will make insurance policies more affordable for people. 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.”
Welcoming the move, Anil Kumar Aggarwal, MD and CEO at Shriram General Insurance said, “The removal of the cap on commission payments will positively impact the insurance sector. It will facilitate greater product innovation, development of new product distribution models and lead to more customer-centric operations. It will also increase insurance penetration and provide flexibility to insurers in managing their expenses. Overall, it will smoothen adherence to compliance norms.”
