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IRDAI Removes Commission Limit For Agents

Context:

The Insurance Regulatory and Development Authority of India (IRDAI) has lifted limits on the payment of commissions to insurance intermediaries.

Relevance:

GS II: Polity and Governance (Regulatory Bodies)

Dimensions of the Article:

  1. Details
  2. What does the new IRDAI rule say?
  3. How will this move benefit insurance companies and agents?
  4. What benefit will consumers get?
  5. Insurance Regulatory and Development Authority of India (IRDAI)

Details:

  • Life and non-life players will have more freedom in offering commissions – the compensation paid to and received by an insurance agent from an insurer for soliciting and procuring an insurance policy.
  • However, the commission will have to be within their overall Expenses of Management (EOM) and insurers can have board-approved limits for paying commissions to their agents.
    • Expenses of Management (EOM) include all expenses in the nature of operating expenses of general or health Insurance business and commission to the insurance agents or insurance intermediaries. It also includes commission and expenses on reinsurance inward, which are charged to the revenue account.
  • IRDAI said the regulation will come into force from April 1, 2023, and will remain in force for a period of three years thereafter.
  • Insurance intermediaries include corporate agents, insurance brokers, web aggregators, insurance marketing firms and a common public service centre – SPV.

What does the new IRDAI rule say?

  • IRDAI has asked insurance companies, including life and non-life, to fix an overall cap on commission to agents, brokers and other intermediaries, giving more flexibility to insurers in managing their expenses.
  • This means the regulator has replaced the earlier cap on different commission payments to various types of intermediaries with an overall board-approved cap which should be within the allowed expenses.
  • Objective: This rationale of the regulation is to enable and provide flexibility to the insurers, both life and general insurers, to manage their expenses within the overall limits based on their gross written premium to optimally utilize their resources for enhancing benefits to policyholders.

How will this move benefit insurance companies and agents?

  • Major Reform: The removal of the cap on commission payments is welcomed by insurance sector participants and is considered a significant reform.
  • Higher Commission: With the new regulation, insurance companies can pay a higher commission to agents if they bring in good business that is claim-free.
  • Liberty to Give Commission: The liberty to give commission to an agent is left to the company.
  • Facilitates Innovation: The new norms will facilitate greater product innovation and development of new product distribution models, making operations more customer-centric.
  • Increases Insurance Penetration: The proposed regulations will increase insurance penetration, provide flexibility to insurers in managing their expenses and overall smoothen adherence to compliance norms.
  • Ensures Parity: The proposed regulations will ensure parity across varying business models and greater flexibility in managing expenses for insurers.

What benefit will consumers get?

  • Post the changes in regulations, insurance agents are likely to be more interested in selling insurance products and explain policy details to consumers beforehand.
  • The claim ratio of these agents will also be better.
  • When claim outgoes are within the overall manageable limit, an insurance company may not increase the premium, which will be beneficial for consumers.
  • The move will also help in increasing insurance penetration as agents will get higher commissions.

Insurance Regulatory and Development Authority of India (IRDAI)

  • The Insurance Regulatory and Development Authority of India or the IRDAI is the apex body responsible for regulating and developing the insurance industry in India.
  • It is an autonomous body. It was established by an act of Parliament known as the Insurance Regulatory and Development Authority Act, 1999. Hence, it is a statutory body.
  • The IRDAI is headquartered in Hyderabad in Telangana. Prior to 2001, it was headquartered in New Delhi.
The functions of the IRDA are listed below:
  • Its primary purpose is to protect the rights of the policyholders in India.
  • It gives the registration certificate to insurance companies in the country.
  • It also engages in the renewal, modification, cancellation, etc. of this registration.
  • It also creates regulations to protect policyholders’ interests in India.

The Section 4 of the Insurance Regulatory Development Authority (IRDA) Act, 1999 specifies the composition of authority which consists of a 10-member team appointed by the government of India which includes.

  • One chairman
  • Five whole time members
  • Four part time members

-Source: Indian Express


March 2024
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