Dynamic pricing's unacceptable in insurance, big payouts erode value: IRDAI chief Ajay Seth

Mumbai: The insurance industry came in for yet another round of censuring by the regulator for its sales practices as chairman Ajay Seth said dynamic pricing like in airlines is unacceptable and that huge sales commissions erode the value for policy holders.

"Dynamic pricing works in the airline industry, not in insurance," Ajay Seth, chairman, IRDAI said at a financial industry summit. "The basic principle of any digital platform is come and compare our price without any personal details. There should not be any opportunity for dynamic pricing on a digital platform," he said.

Indian insurers have been at the receiving end of the regulator for their sales practices that enrich the distributors, including banks, and delivering poor returns and coverage for policy buyers. The regulator recently circulated a bunch of proposals that would reduce the rate of commission and cap them.


Under the consultation paper, IRDAI has proposed paying the same commission on ported policies as on renewals. Existing regulations do not provide for commission on portability, but insurers often treat ported policies as new policies in practice, Seth said.

The regulator is also considering reducing health insurance commissions from the current industry average of about 24% to 15-20%, with higher payouts for first-time sales and lower commissions for renewals.

Seth said acquiring a new customer generally requires more effort than renewing an existing policy. "If the 24% goes towards acquiring the business, thereafter the cost of administration, what is left in the risk pool is small. Obviously, it will lead to upward pressure on the premium rate itself," he said.

He also criticised platforms that seek mobile numbers to arrange callbacks and ask users to opt out of 'Do Not Disturb' restrictions to facilitate sales.

Seth said platforms combining digital distribution with on ground sales teams operate under a different model, and regulators need to ensure that the primary focus remains on serving policyholders and giving them transparent price comparisons.

Seth said IRDAI is analysing feedbacks and would decide the way forward after engaging with stakeholders, as the objective was to build consensus on the proposed changes before finalising the framework. "A reform of this nature has to be built on consensus. It cannot be just about writing another set of regulations," Seth said.

On health insurance, the regulator is examining concerns that its proposed changes to health insurance commissions could affect policy renewals and portability, as it assesses whether distribution incentives are influencing policyholders' decisions to switch insurers.

"There is an associated concern that since it is so distribution centric system, that will lower commissions, will disincentivise renewal and portability. That's my concern," said Seth at Business Standard BFSI Summit.

The regulator is examining whether commissions are influencing policyholders' decisions to switch health insurers. Data for 2024-25 showed that 60% of portability inflows went to three insurers, while 90% went to seven insurers, Seth said. "What is at play? The lessons we drive is the commission is driving behaviour from one to another," he said, suggesting that incentives may be influencing switching patterns.