MUMBAI: The Insurance Brokers Association of India (IBAI), the body representing 798 licensed insurance brokers, on Tuesday cautioned that the Insurance Regulatory and Development Authority of India’s (Irdai’s) proposed insurance distribution reforms could lead to job losses in insurance distribution as well as within insurance companies.
It also cautioned that commission caps below the cost of servicing customers could make it difficult for insurers and intermediaries to reach customers in smaller towns and cities.
Irdai had released a consultation paper proposing changes to insurance distribution norms, including lower commission caps for intermediaries and tighter expense of management (EoM) limits for insurers.
While IBAI supports the regulator’s stated objectives of protecting policyholders, improving transparency, curbing mis-selling and widening insurance coverage, it has raised concerns over the proposal to introduce more than 30 separate commission caps based on products and distribution channels, along with a reduction of more than 30 per cent in insurers’ overall expense limits over five years.
According to the association, the proposed changes could hurt the very policyholders the reforms seek to protect.
IBAI said the proposed reduction in EoM limits cannot be achieved solely through efficiency gains and could force insurers to cut sales, servicing and claims-related staff across both private and public sector companies.
IBAI also said the proposed commission caps could weaken the role of independent insurance brokers, who are appointed by customers to compare policies, negotiate coverage and assist with claims. It expressed concern that the proposals could result in a customer’s broker receiving lower remuneration than a tied agent, reducing the incentive and ability of brokers to provide these services.
IBAI also argued that part of the increase in reported commissions reflects the reclassification of payments that were previously recorded under other expense heads. According to the association, high commissions are particularly concentrated in captive distribution channels, where customer choice may be limited. However, the proposed caps would apply across channels, including independent brokers, it said.
IBAI cautioned that the proposals could also reduce distribution capacity at a time when India is pursuing the “Insurance for All by 2047” objective. It raised concerns over regulatory stability, particularly as the government has opened up the insurance sector to 100 per cent foreign direct investment.
IBAI has urged Irdai to retain the 2023 EoM framework while tightening calculation rules, if necessary.
It has also proposed limiting commission caps to credit-linked and other coerced-choice sales, where it believes the evidence for intervention is strongest. It suggested that insurers should be required to refund premiums to customers in segments that persistently record low claims ratios, citing the Pradhan Mantri Fasal Bima Yojana (PMFBY), Ayushman Bharat and no-claim bonus mechanisms as precedents.
The association has further sought an exemption for commercial and large risks and called for a regulatory impact assessment before any new regulation is drafted.
Source: Business Standard
