The IRDAI, following consultations with the insurance industry, has issued an exposure draft that reverses an earlier proposal to place a ceiling on commissions to agents and intermediaries.
Instead, it suggests that the commissions payable by insurance companies—life and non-life and health—should not exceed the expense of management (EoM) limits specified under the respective regulations framed for the life and non-life sectors.
In the earlier version of the draft, the regulator had proposed that the maximum commission payable under general insurance products, including health insurance plans offered by general insurers, should not exceed 20% of the gross premium written in a particular financial year. The same limit was proposed for health products sold by standalone health insurers.
EoM
The IRDAI also released two separate exposure drafts relating to EoM for life and non-life insurers. Under the revised EoM guidelines, which will enter into effect on 1 April 2023, the regulator proposes a limit of 30% of gross written premium written in the financial year as the EoM limit for general insurers and 35% in case of standalone health insurers.
The existing EoM limits are based on the business segment and volumes, and a blended EoM cap would work out to be around 31% for multi-line general insurers and around 33% for standalone health Insurers. The current commission and rewards together total 18-19%, except the motor third-party liability branch, wherein commission rates are nil in the first three years and 2.5% thereafter.
When it comes to life companies, the previous draft proposed to link commissions to EoM, wherein if the actual EoM in the previous financial year does not exceed 70% of the allowable EoM limits then life insurers can adopt commission limits as approved by its board. But, if the EoM exceeds 70% of the allowable limits, then the insurer must adhere to caps on commission proposed by the regulator.
The revised draft suggests that the commission payable on life insurance policies, including health insurance products offered by life insurers, cannot exceed EoM limits. This will be effective from the financial year beginning on 1 April 2023.
The draft IRDAI—(Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2022—proposes a single limit on ‘Expenses of Management’ and additional allowances for the rural sector and government welfare-oriented schemes; and also for expenses related to InsurTech and insurance awareness.
In another exposure draft—(EOM of Insurers Transacting Life Ins Business) Regulations 2022—on expenses of management in the case of life insurers, IRDAI suggests the introduction of an objective clause to give flexibility to the insurers to manage their expenses within overall limits based on their gross written premium.
Senior management remuneration
The exposure drafts also propose that no variable pay should be payable to an insurer’s managing director, CEO, whole-time directors, and key management persons for the financial year in which the actual expenses exceed projected expenses by more than 10%.
