This means the regulator has replaced the earlier cap on different commission payments to various types of intermediaries with an overall board approved cap which should be within the allowed expenses.

The IRDAI (Payment of Commission) Regulations, 2023, notified on March 26, 2023 is expected to provide more flexibility in product innovation and insurance penetration, insurance officials said.

Anil Kumar Aggarwal, MD and CEO at Shriram General insurance, said, “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, Aggarwal said.

“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.

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 per cent, these EOM (Expenses of Management) limits will help in bringing cost discipline and take the industry in the right direction of prudency and profitability, he said.

Commenting on the development, Indranath Bishnu, Partner, Cyril Amarchand Mangaldas said this change introduced by the IRDAI signifies movement towards a more liberalised regime further to the stated objective of providing flexibility to the insurers to manage their expenses within the overall limits based on their gross written premium.

“It is clear that as long as an insurer maintains financial hygiene, it is free to determine the extent of commission to be paid to its intermediaries. Moving to such a liberalised regime will help intermediaries and insurers to enter into more viable arrangements and increase penetration,” he said.

In the case of motor insurance service providers, who are essentially automobile dealers, command higher commission than agents and brokers. IRDAI had earlier allowed insurance companies to pay up to 22.5% of total premium as the commission in two-wheelers and 19.5% of the total premium for other vehicles such as cars and SUVs.

IRDAI had earlier released draft regulations proposing a 20% cap on insurance agents’ commission which would also require insurers to have a board-approved policy on commissions, rewards and remunerations paid to agents.

In the exposure draft released last year, IRDAI proposed that the commission payable to agents under general insurance products – including health insurance – offered by general insurers should be capped at 20% of the gross written premium written in India in a given year. It proposed the same commission cap for health insurance products offered by standalone health insurers.