The Insurance Regulatory and Development Authority of India (IRDAI) in its recent update announced the removal of the cap on the commissions earned by agents, brokers and online insurance aggregators. As opposed to the cap set on insurance agents earlier, the insurance sector will now decide the commission payments based on their operational expenses.
This is indeed a welcome change for those involved in selling insurance policies. Insurance companies in India applaud this move citing more flexibility in managing expenses. However, will this move affect those inclined to buy insurance in the near future?
Many people have asked if this move would promote the misselling of insurance products. They opine that if insurers can set any level of commission then there is an increased likelihood of them taking advantage of gullible customers.
Naval Goel, Founder and CEO, PolicyX said, “This will not affect the actual commissions. Commissions will be market driven and will drive efficiency in the market and should help increase penetration. Overall, policyholders should not be impacted in a big way. This should in no way have any impact on the misselling as currently also insurance companies pay commissions through other routes.”
Ideally, the caps were meant to protect customers. With this lid blown off, many people have highlighted how this move has provided much-needed respite to insurance companies already reeling under risk, especially, during the Covid-19 pandemic. Does it mean that the IRDAI care more for its agents at the expense of the policyholders?
Sumit Ramani, Actuary & Co-founder, ProtectMeWell.com said, “The Payment of Commission of Regulations 2023 should be seen in the light of Expenses of Management Regulations 2023. While there is flexibility around the commission structure there is still an overall cap on the expenses that can be attributed to operational expenses. Essentially, the insurers now have the option to align the commission structures with the business efficiency, strategy, and maturity. Equally, there is a clear push from the regulator to invest in insurance awareness and insure tech initiatives as the regulation allows additional expenses towards them.”
Ramani added, “In my view, insurers would work towards greater control over expenses and the adoption of technology. The insure tech companies focussing on assisted sales would be the first set of beneficiaries of it. From the customer’s point of view, the changes would start becoming visible in the medium term. While it is difficult to predict how it would unfold but I can only see positives here.”
Viral Bhatt, Founder, Money Mantra said, “The removal of the cap on commissions earned by agents, brokers, and online insurance aggregators may have both positive and negative effects. On the one hand, it could incentivize more agents and brokers to enter the insurance market, which could lead to increased competition and potentially better services for customers. On the other hand, it could also lead to higher premiums and charges for insurance policies to cover the increased commissions.
“The removal of the cap may also impact the impartiality of the advice given by agents and brokers, as they may be incentivized to sell policies that provide higher commissions, rather than what is best for the customer.
Overall, it is difficult to predict how the removal of the cap will impact those interested in buying insurance in the long run. It will depend on how the insurance companies and intermediaries respond to the change and whether they are able to strike a balance between profitability and customer needs. It is always advisable to thoroughly research insurance policies and consult multiple sources before deciding,” added Bhatt.
Suresh Sadagopan, MD & Principal Officer, Ladder7 Wealth Planners said, “In general, it is good for the regulator to set the rules, ensure that there is no collusive action possible after which allow market forces to determine the remuneration, premiums etc. Promoting competition and ensuring a vibrant market is key for this to work well. To that extent what IRDAI is doing is correct. They need to be vigilant, however.”
Not many people think that this would affect intended policyholders adversely. Whether this regulatory change would be pathbreaking and pave the way for more alterations in the insurance sector is best left to time and people inclined to buy insurance in the long run.