Regulator warns insurers over soaring agent commissions in health and motor insurance, urging them to pass savings to customers.
Mumbai: High commission payouts to distributors by insurers that are making health and motor insurance costlier for policyholders has attracted the regulator’s ire. The issue came up for discussion at a recent meeting of the regulator with non-life and pure standalone health insurance companies. The Insurance Regulatory and Development Authority of India (IRDAI) has asked insurers to lower commissions to distributors and pass on the benefits to policyholders. While insurers are quick to blame medical inflation every time they raise your premium rates, the bigger culprit is the commission paid to agents. Non-life insurance and pure health insurers are paying commissions ranging from 15 per cent to as high as 45 per cent to their agents, the cost of which is being borne by policyholders. According to experts, medical inflation is rising 10-12 per cent per annum.
Says an insurance consultant, “The IRDAI’s concern is valid. Why should the distributor be paid 35-45 per cent commission in the first year and also high commissions on policy renewals? Why are insurers not disclosing the commission ratios to the public? In motor insurance, the premiums have never come down even though the number of accidents has come down in relation to the number of vehicles insured. The dealers are paid huge commissions in motor, so are the agents of health and life insurance, the cost which is borne by the policyholder.”
In 2023, IRDAI removed limits on the payment of commissions to insurance intermediaries and instead capped overall management expenses at 30 per cent of the gross premium for general insurers and 35 per cent for a standalone health insurer. The regulator made it mandatory for insurance companies to keep commissions within their overall Expenses of Management (EoM).
Before April 2023, the commission on health and motor insurance was about 19.5 per cent of the gross premium (commission of 15 per cent and reward of 4.5 per cent).
According to a media report, the IRDAI is of the view that general and health insurers have misused the relaxation and raised commissions significantly, negatively impacting policyholders. The decision to change the commission rules would be reviewed after 3 years, i.e. in 2026. The regulator has warned insurers that the limits on individual categories may return if some of the benefit isn't passed to the policyholders.
