Irdai Pulls Up Insurers For High Commission Payouts, Calls For Action To Cut Premiums

Insurance policyholders in India have been struggling with continued hikes in premiums, most of which have been particularly borne by senior citizens. Taking note of this growing problem, the Insurance Regulatory and Development Authority of India (Irdai) has now issued a stern warning to insurance companies over excessive commission payouts. The regulator has further urged the insurers to take some corrective measures, which should ensure that policyholders benefit from such cost reductions.

According to a report by CNBC TV18, Irdai, in its quarterly meeting with insurance companies, has cautioned insurers that failure to pass on benefits to customers could lead to the reintroduction of stricter commission limits.

Why the concerns over rising commissions?

In April 2023, Irdai rolled out some new commission guidelines. The new rules removed fixed caps on payouts to insurance agents, distributors, and other intermediaries.

In place of this, the regulator placed an overall cap on the total expenses of management (EoM), including the commissions and operational costs of insurers. The limit was set at 30 per cent of gross premium for general insurers and 35 per cent for standalone health insurers.

Before these changes were introduced by Irdai, 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).

Irdai allowed this relaxation to provide flexibility to insurers so that they can allocate expenses more efficiently. However, reports suggest that instead of reducing operating costs, insurers have increased their commissions. As a result, policyholders have not seen any decline in their premium costs, while agents and intermediaries supposedly reaped benefits.

Policyholders Bear the Brunt of High Premiums

A survey conducted by LocalCircles in February 2024 found that over two-thirds of health insurance policyholders saw their premiums go up by 50 to 200 per cent over the past three years. Based on responses from over 35,000 citizens located across 329 districts of India, the survey found that 52 per cent of health insurance policyholders reported a rise of more than 25 per cent in the last year alone.

Irdai’s warning, particularly targeted at general health insurance companies against high commission payouts, is coming at a critical time. Why? The regulator reviews the commission limits every three years, and the next revision will be undertaken in 2026. By making it clear that if insurers do not take corrective steps, the previous commission limits may be reinstated, Irdai is trying to hold insurers accountable, particularly at a time when policyholders have been struggling with rising costs.