IRDAI removes commission cap for insurance agents; replaces it with company-wide limit

Insurance Regulatory and Development Authority of India (IRDAI) has removed the cap on commission payments to agents, aggregators and brokers. According to new rules the earlier cap on commission payments is now replaced with an overall cap on expenses of management of insurers. 

“The IRDAI regulatory changes are good for customers and the insurance industry, i.e., the revised Expenses of Management (EOM) and Commission limits for the industry. We firmly believe that the shift from product level commissions to a company-wide limit of expenses, as proposed through the proposed regulations, will ensure parity across varying business models while rendering greater flexibility in managing expenses for insurers," said Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance.

Anil Kumar Aggarwal, MD and CEO at Shriram General insurance agreed, “The regulatory change is an eagerly awaited and path-breaking reform by IRDAI. 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.”

Earlier in 2022 IRDAI  proposed a 20 per cent limit on agents’ commission in an ‘Exposure Draft

Singhel added," Moreover, with the majority of the insurers above the prescribed norms of expenses and with the industry reeling with a combined ratio of more than 118%, these EOM limits will help in bringing cost discipline and take the industry in the right direction of prudency and profitability. This should hence translate into better pricing and products for customers in the medium to long term. The revised regulations also provides for an extra expense allowance for Insurtech expenses, spends on insurance awareness, and rural and social schemes of the government, all of which are targeted towards the IRDAI’s overall objective of enhancing penetration and ease of doing business. The industry hence welcomes this change with open arms.” 

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