15 hrs ago
Insurers May Lower Premiums as Regulator Proposes Commission Cuts
India's insurance regulator wants to change how much agents and brokers are paid.
The proposed changes would reduce commissions on several kinds of insurance.
This could make some new policies cheaper.
In life insurance, more of a premium could go toward investments and maturity benefits.
Insurers might instead keep some of the savings as higher profits.
The regulator also wants agents and insurers to be responsible when policies are sold unfairly.
Banks would not be allowed to force borrowers to buy individual insurance with a loan.
Some insurance companies and brokers worry that lower payments could lead to weaker help with claims.
The Insurance Regulatory and Development Authority of India has proposed reducing insurance distribution commissions.
Term-insurance commissions could fall from about 51% of the first-year premium to 25-30%.
Lower distribution costs could enable cheaper new policies or higher maturity benefits for policyholders.
The proposals include commission clawbacks and accountability measures for mis-selling and early policy lapses.
Industry representatives warn that lower commissions could reduce claims support, particularly for low-value policies.
- Who
- The Insurance Regulatory and Development Authority of India, insurers, lenders, agents and brokers, and policyholders.
- What
- The regulator has proposed new expense-management and commission rules that could reduce distribution costs and affect insurance pricing.
- Where
- India's insurance market.
- When
- The changes are proposed for implementation after the regulator releases its final guidelines.
- Why
- To reduce incentives for mis-selling, compulsory bundling and other harmful sales practices, while improving policyholder protection.
Policyholder Benefits
Industry Concerns
Use of cost savings
Policyholder Benefits
Insurers could pass lower distribution costs to customers through cheaper new policies or higher payouts and maturity benefits.
Industry Concerns
Insurers may use the savings to increase their margins rather than pass them on to policyholders.
Commission reform
Policyholder Benefits
Lower commissions, clawbacks and accountability could reduce mis-selling and reward distributors for selling suitable policies.
Industry Concerns
Lower commission caps could make it harder for brokers to provide claims support, potentially worsening customer experience for low-value policies.
Loan-related insurance
Policyholder Benefits
Preventing lenders from requiring individual credit-linked insurance could reduce commission-driven bundling and give borrowers greater choice.
Industry Concerns
The article does not identify a specific opposing industry position on this proposal, but notes that lenders currently insist on individual products because they generate higher commissions.
Key facts
- Term insurance commission
- Proposed reduction from an average 51% of the first-year premium to 25-30%.
- Health insurance commission
- Proposed reduction from 30% to 15-20% for new policies; renewal commissions would be 5-10%.
- Motor insurance commission
- Proposed reduction from 24% to 5-10%.
- Term renewal commission
- Proposed increase from an average 4% to 7.5-10%.
- Potential policyholder benefit
- New policies may become cheaper, while life-insurance plans could direct more premium toward investments and maturity benefits.
- Mis-selling safeguards
- The proposals include commission clawbacks, staff identification linked to policies, and public disclosure of mis-selling information.
- Loan-linked insurance
- Lenders would not be allowed to make a loan conditional on buying insurance; they could purchase group coverage themselves.
Quotes
Indraneel Chatterjee
Chief operating officer of InsuranceDekho.
“Clawback should extend to early lapse, and first-year commission should be spread rather than paid up-front. Distribution will change when distributors are paid for selling well, not merely for selling.”
financialexpress.com
“Group insurance is better but lenders insist on individual credit-linked products because of higher commission.”
financialexpress.com
Sources
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