The Indian insurance sector has new rules on commissions payout as of April 1. Life and general insurance companies no longer have to adhere to any specific ceilings on commissions paid to agents, distributor banks and intermediary. Nevertheless, the Indian Insurance Regulatory and Development Authority of India (IRDAI) has imposed a respective Expense of Management (EoM) cap on the companies. Thus, while they will get to determine their own commission limits, they must remain within the EoM ceiling.
The industry acknowledges the changes, with many believing it would bring in transparency, more customer-centric operations, and incentives to improve the penetration of insurance sector. On the other hand, smaller private life insurers feel the growing restrictions would not benefit them. Apart from that, the bigger listed players’ ability to payouts to their distributors would be under pressure by unlisted insurers now having increased flexibility.
One of the ultimate impacts of the new rules is that policyholders should not expect to see a huge change in their returns. As Emkay Global said in their report, the insurers will have to make sure their policyholders, distributors and shareholders’ interests remain balanced. On top of that, MS Kannan, MD and CEO of ICICI Prudential Life Insurance is confident that this move would help similarly boost long term persistency, as well as product innovation in the sector.
In addition, one important aspect of this new IRDAI regulation is the exclusion of expenses related to Pradhan Mantri Suraksha Bima Yojana, Fasal Bima Yojana, rural business, and insurance awareness initiatives.
ICICI Prudential Life Insurance (IPLI) is one of the largest private sector life insurance companies in India. ICICI Prudential is a joint venture between ICICI Bank, one of the largest banks in India and Prudential plc, one of the largest life insurance companies in the world. The vision of ICICI Prudential is to be “India’s most admired Life Insurers by living up to their promise and by putting the interest of their customers first”. Anil Kumar Aggarwal is the MD and CEO of Shriram General insurance. He comes with over 25 years of experience in the insurance industry in India. He formerly was the executive director of Birla Sun Life Insurance and manager director at DSP Merrill Lynch Ltd. Aggarwal played a key role in Shriram’s transformation from its roots in motor insurance to become a superior life and general insurer. He continuously strives to create customer-centric operations and greater product offerings to insurance clients.
Overall, the new IRDAI rules on commission payout promises to be boon to the Indian insurance sector as a whole. Commission payouts will remain as is, but there would be lesser backdoor incentives to agents, whilst maintaining the transparency of the system. As mentioned, this will potentially lead to better pricing, more product innovation, and cost discipline in the sector, while preserving the interests of policyholders.