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Based on recommendation of the Regulation Review Committee (RRC), IRDAI has proposed introduction of a new expense of management (EoM) in which it has kept the existing commission structure of agents and intermediaries intact.
According to the proposals, insurers can continue to offer commission structure within the expense of management. For instance, if a life insurer charges 100% of the first-year premium as expense of management, they can offer the entire 100% as commission to their agents or intermediaries.
However, insurers will have to follow a board approved commission structure. Such a policy has to keep six things in mind:
- Protect interest of policyholders
- Increase insurance penetration and density
- Commensurate with the tenure of insurance policy
- Protect interest of agent and enhance their performance
- Commensurate with its business strategy
- Simple to administer and cost effective
Insurers will have to get approval from their board on commission structure of intermediaries within 45 days of each financial year.
Further, according to the proposal, IRDAI said that insurers can charge upto 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%. However, for single premium policies, the regulator has capped it at 14% of the total premium as maximum management of expenses.
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.
However, for group pure term, the expenses can go up to 10% on single premium policies and 15% on renewable policies.
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.
Other key developments:
- Insurers can charge an additional 5% for expenses towards insuretech
- Life insurers can charge an additional 5% expenses for setting up head office in IFSC. Such a leeway is proposed to be 10% for general and health insurers
- Insurers can spend 5% towards increasing awareness about insurance. This money can be channelled in insurance councils
- 15% of the total premium can be charged to run social security schemes like Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jan Arogya Yojana (PMJAY), Pradhan Mantri Fasal Bima Yojana (PMFBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
IRDAI has asked all stakeholders to submit their feedback by December 06 before 5 pm on finance.life@irdai.gov.in and indradeep.s@irdai.gov.in.
