IRDAI may allow transition period for insurance fee cap

New Delhi: The Insurance Regulatory and Development Authority of India (IRDAI) is open to a reasonable transition period for implementing proposed caps on insurance commissions, but the reform cannot be postponed indefinitely, its chairman Ajay Seth has said.

Seth said the regulator is examining industry feedback on a consultation paper that is open until October 25, while maintaining that distribution costs must be aligned with the value delivered to the policyholder, and selling incentives must reward persistency rather than first-year sales.

"We will examine every submission seriously, including concerns on transition. Our approach has always been consultative. Where the industry demonstrates a genuine operational need, a reasonable glide path is possible," Seth, who was in the national capital for the Kautilya Economics Conclave, told ET in an interview. He said the reduction in management expenses is proposed to be phased over five years, and added that any transition will be designed so that it does not become an indefinite postponement or lead to undesirable intermediate outcomes.


Asked about industry suggestions that expenses be tiered like the mutual fund industry to level the playing field for new entrants, he acknowledged that new and smaller insurers faced higher set-up costs in their initial years, but all insurers have to move towards achieving the expense limits prescribed.

"It is a constructive suggestion, and we will examine it...The existing framework already recognises this and provides for relaxation in the first five years," he said, adding that the regulator does not intend to create a situation where there is a differential in the distribution costs between players and hence the commission limits. "Any relaxation must be time-bound and tied to business plans. It should not create a permanent advantage or encourage aggressive pricing of distribution," Seth noted.

Seth said any step that enhances policyholder value will only support greater uptake of insurance, increased trust and further growth of the sector. Very high upfront commissions inflate costs, encourage mis-selling and lead to early lapses, all of which damage trust and work against penetration.

He said the rationalised commissions and insurer expenses, combined with incentives for persistency, will make distribution more sustainable. "The proposed Public Insurance Registry will give a consolidated view of each person's cover. This will help identify under-insurance, enable better suitability checks and curb mis-selling," Seth said, pointing out that market infrastructure institutions such as Bima Sugam will lower the cost of reaching and servicing customers.

Making claims effective

On the lack of transparency in claim settlements, he said, commission rationalisation addresses one end of the problem; the claim is the other. IRDAI's health master circular mandates cashless authorisation within an hour and discharge approval within three hours, he said. "No claim can be rejected without approval of a Claims Review Committee, and reasons must be communicated to the claimant, citing specific policy terms," he said, adding that the regulator, in March, along with CII, set up five provider-payer (healthcare providers-insurers) working groups.

Asked about rising costs of health insurance, he acknowledged that affordability is a serious concern. "Health insurance is at an unstable equilibrium at the moment; our effort is to move it towards a sustainable one, he said.

Seth noted that premiums are a function of claims experience, driven by medical inflation, higher utilisation, EoM (Expense of management) of insurers, including distribution costs and rising healthcare costs. He said the goods and services tax exemption on individual health policies had lowered costs for customers which led to a much higher growth in health insurance. He pointed out that for senior citizens, who need health cover most, insurers need to consult IRDAI before raising premiums by over 10% a year, and added that reduction in distribution and operational costs of insurers will help further.

"Since insurers alone cannot address all aspects that lead to premium increase, our provider-payer working groups are studying claims and medical inflation, and working on other areas that can help address issues in this regard and in claims management, he said.

Investment interest

Seth said there is growing interest in the Indian insurance market. "We are seeing serious interest, and expect investment to build steadily rather than arrive all at once," he said. The amendment allowing 100% foreign investment is recent, and insurance investment decisions are long-term, requiring market assessment, structuring and board approvals, he said pointing out that two insurers have already raised foreign shareholding to 100%.

Implementation of Ind AS, aligned with IFRS 17, from April 2026 will attract global investors, as Indian insurers' results become comparable with international peers; our move to risk-based capital will complement this. Distribution reforms, the Public Insurance Registry and market infrastructure institutions such as Bima Sugam will lower costs and deepen market data, he said, adding that even for reinsurers the amendment has cut the net owned fund requirement for foreign reinsurance branches from ₹5,000 crore to ₹1,000 crore.

"The opportunity is compelling: low penetration, rising incomes, a young population and improved affordability after the GST exemption. Few markets combine such scale, growth and reform momentum," he said. On the need for new subclasses of insurance business, he said the regulator's approach will be guided by need rather than novelty: whether a distinct classification would serve policyholders better, enable products the current classes cannot accommodate, or improve supervision.