Irdai proposes product-wise commission caps, lower expense limits for insurers

Mumbai: The Insurance Regulatory and Development Authority of India (Irdai) on Wednesday proposed a major overhaul of the way insurers pay commissions to distributors, with limits to be linked to the type of product, distribution channel, size of the policy and the effort required to sell.

The proposal comes alongside a plan to reduce insurers' overall expenses. Irdai has proposed bringing life insurers' Expense of Management (EoM) down to 15% of premium in two years and 12.5% in five years. For general insurers, the EoM limit would fall to 25% in two years and 20% in five years from 30% currently.

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The regulator said the changes are to reduce distribution and operating costs and improve value for policyholders. Irdai has sought feedback by October 25.

Under the proposed commission framework, there will not be a single cap across insurance products. In general insurance, the proposed first-year commission on individual health policies is 15% for distribution entities and 20% for agents, while renewal and portability commissions would be 5% and 10%, respectively.

Similarly, for retail property insurance, the proposed limits are 15% for distribution entities and 20% for agents. For large property and engineering risks with a sum insured above ₹2,500 crore, the limits would be 5% and 5.5%, respectively. Insurance sold along with loans or credit would have separate, lower limits, including 5% for motor own-damage, personal accident and liability policies and 5% for first-year health insurance.

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For life insurance, the proposed commission would vary according to the premium payment term. For individual non-linked and linked policies with a payment term of 10 years or more, the first-year commission would be capped at 20% for distribution entities and 25% for agents.

For policies with a six-to-eight-year payment term, the limits would be 14% and 17.5%, respectively. The framework also provides additional commission of 10% of the applicable limit for individual policies sold in cities and towns with populations below 10 lakhs, and 20% for business sourced from towns with populations below 50,000 and rural areas.