Proposed Reforms by IRDAI
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed new norms to enhance transparency within the insurance sector, focusing particularly on the role of intermediaries. These reforms aim to curb mis-selling and provide clarity on commission earnings.
Key Proposals
- Disclosure of Commission Earnings: Insurance intermediaries will be required to disclose their commission earnings to both the public and the regulator.
- Commission Caps: The IRDAI is considering imposing limits on commission rates to bring order to the industry's competition-driven dynamics.
- Annual Disclosures: Intermediaries exceeding a set commission income threshold must submit detailed annual reports covering:
- Commission earnings
- Related-party transactions
- Profits from operations
- Dividends sent back to promoters or parent entities
- Public Accountability: Such information is to be made public via the intermediaries' websites.
Current Industry Scenario
- Commission Expenses: In FY25, the total commission paid by 26 life and 28 non-life insurers exceeded Rs one lakh crore.
- Non-Life Insurance Expenses: The total gross commission expense for the non-life sector was Rs 47,266 crore in 2024-25.
- Life Insurance Commission: Life insurers paid Rs 60,800 crore as commission in 2024-25, with a commission expense ratio of 6.86%.
Competitive Pressure and Mis-selling
The intense competition in the insurance distribution sector drives insurers to offer higher commissions and incentives. This competition often leads to mis-selling and under-cutting, especially in high-growth areas like health and motor insurance. Intermediaries prefer products with recurring renewal commissions, enhancing the competitive drive to secure new clients.
Emergence of Digital Platforms
Digital platforms and insurtech companies are reshaping the competitive landscape by reducing customer acquisition costs and increasing market transparency.
