Insurers to get flexibility to allocate commissions

The insurance regulator’s decision to remove commission caps and subsume them within the expense of management (EOM) limits is likely to give flexibility to insurers to allocate commissions more freely across products and distributors, and plan their overall expenses between commissions and other costs.

The regulator in its revised draft earlier this week mandated an overarching condition that commissions paid to agents and intermediaries should not exceed the EOM limits specified for insurers in different segments (general insurance, standalone health insurance, and life insurance), contrary to its stance in the August draft guidelines that it had released.

In the earlier guidelines, the regulator specified that the maximum commission payable under general insurance products, including health insurance products offered by general insurers, cannot exceed 20 per cent of the gross premium written in that financial year. The same limit was proposed for health products sold by standalone health insurers.

And for life insurers, they said if the actual EOM of companies in the previous financial year is not exceeding 70 per cent of the allowable EOM limits then life insurers can adopt commission limits as approved by its board. But, if the EOM exceeds 70 per cent of the allowable limits, then the insurer must adhere to caps on commission proposed by the regulator.

According to Irdai, the revised draft regulations on commissions emphasise on the board’s oversight through a board-approved policy on the payment of commission.