5 hrs ago
Irdai Caps Commissions and Expenses, Raising Small Insurer Fears
India’s insurance regulator has suggested new limits on commissions and business expenses.
Commissions are payments insurers make to people or companies that sell insurance.
The regulator wants these payments to vary according to the product, sales channel and work involved.
It also wants insurers to spend no more than set percentages of their premium income.
Large insurers may find these limits easier to manage because they already have many customers renewing policies.
Smaller and newer insurers say they need to spend more to attract agents and customers.
They also must pay for technology, legal work, compliance and other required functions.
Some industry leaders fear the rules could make it harder for new companies to compete.
The regulator’s data showed that smaller insurers currently have higher expenses compared with their premium income.
The Insurance Regulatory and Development Authority of India proposed standard commission caps across insurance products and distribution channels.
The proposal would limit life insurers’ management expenses to 15% of gross direct premium income.
General insurers’ expense limit could fall to 20% from 30%, while standalone health insurers’ limit could fall to 30% from 35%.
Industry executives say smaller and newer insurers may struggle to afford customer acquisition, agents and mandatory infrastructure.
Irdai data showed smaller insurers have substantially higher expense-to-premium ratios than large insurers, intensifying concerns about market concentration.
- Who
- The Insurance Regulatory and Development Authority of India and India’s life, general and standalone health insurers.
- What
- Irdai proposed standardized commission caps and new limits on insurers’ management expenses.
- Where
- India.
- When
- The proposal was released on Wednesday.
- Why
- The proposal aims to regulate commissions and expenses amid wide differences between insurers, while industry executives say it could limit smaller insurers’ growth.
Industry Concerns
Regulatory Standardization
Effect on smaller insurers
Industry Concerns
Insurers argue that smaller and newer companies need higher upfront commissions and greater spending to attract agents, acquire customers and build technology and required functions.
Regulatory Standardization
Irdai’s proposal would apply standardized limits based on insurance segments, products, distribution channels, complexity and selling effort.
Market competition
Industry Concerns
Industry executives fear simultaneous commission and expense caps could favor large insurers with established renewal books and push the market toward an oligopoly.
Regulatory Standardization
The proposal responds to wide variations in commission rates and expense ratios across insurers and products.
Uniform expense limits
Industry Concerns
Executives say identical expense percentages may unfairly burden smaller and mid-sized insurers because mandatory regulatory and technology costs are relatively similar for all companies.
Regulatory Standardization
The proposed limits would establish consistent expense boundaries for insurers based on their business category.
Key facts
- Life insurer expense limit
- Proposed at 15% of gross direct premium income.
- General insurer expense limit
- Proposed at 20% of gross direct premium income, down from 30%.
- Standalone health insurer limit
- Proposed at 30%, down from 35%.
- Individual life commissions
- Average first-year commissions ranged from 14% to 51%; maximum rates ranged from 33% to 81%.
- General insurance commissions
- Average commissions ranged from 6% to 29%; maximum rates ranged from 32% to 93%.
- Expense disparity
- A large general insurer with a 10% market share had expenses equal to 23% of premiums, compared with 40% for insurers with less than 1% market share.
Quotes
A senior official at a private life insurance company
An unnamed senior official at a private life insurance company
“What is the incentive for somebody new to come into the country and set up a new sort of business? I don’t know how international investors look at this flip-flop every year.”
financialexpress.com
“My big fear is that the industry will become an oligopoly because only people with a very large renewal book will be able to make a cut”
financialexpress.com
Krishnamoorthy Rao
Managing director and chief executive of Generali Central Insurance
“Everyone has to build their IT infrastructure and spend money there. Whether you are small or big, that spending is more or less the same for all companies.”
financialexpress.com
Sources
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