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From April 1, 2023, IRDAI has done away with the cap on payment of commission of agents and brokers. With this, there is no cap on commission across line of insurance business – life, non-life and standalone insurance companies.
IRDAI believes that the move will increase the penetration and density of insurance. Further, it will enhance the performance of insurance agents and other intermediaries among other things, said the insurance regulator.
Here are some key highlights of the gazette notification that matter to you:
- Insurance companies will have to define their commission structure approved by the board within 45 days of every financial year
- IRDAI has discontinued payment of rewards to intermediaries
- There is no mention on ULIPs in the gazette notification. So, ULIP will continue to follow the existing commission structure
- The commission has to come from the total expense of management (EoM)
- Going by EoM, term policies will have better pricing power than traditional policies
- Renewal commission on life insurance policies will go up substantially
- You may expect a little more from single premium policies especially from pure term policies. So far, insurers paid 2% of the total premium as a commission to agents/intermediaries on single premium policies
- In health policies, standalone companies will have more leeway on commission payment than general insurers
Let us look at the table to understand the revised EoM, which gives clarity on the leeway that insurers have to pay commission:
|
Policy type |
First year |
Renewal |
|
Pure risk (Term) |
100 |
25 |
|
Traditional policies - Whole life, endowment and money back |
80 |
17.5 |
|
Regular annuity |
15 |
6 |
|
Single premium |
Total expenses |
|
|
Single - Annuities - Immediate and deferred |
5 |
|
|
Single premium payment policies |
5 |
|
|
Single Group - Term |
10 |
|
|
Single individual - Term |
10 |
|
|
General and health |
Total expenses |
|
|
Non life policies including health |
30 |
|
|
Health insurance offered by standalone health insurance |
35 |
|
In a research report, Emkay said, “Allowing companies to have a board-approved commission payment policy, while the regulator prescribes and monitors the overall EoM, reflects the regulator’s intent to move away from micro-managing companies and provide flexibility to the management of insurance companies along with easing the compliance burden. The regulations also demand companies breaching the EoM cap to have a board-approved plan and projection in place to turn compliant in three years.”
