The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a major overhaul of the insurance distribution framework, including a simpler three-tier architecture, lower expense limits, revamped commission structures and stronger safeguards against mis-selling.
The insurance regulator released a public consultation paper on “Recalibrating Economics of Insurance Distribution”, outlining reforms covering distribution structure, expenses, commissions, market conduct, transparency and the use of digital infrastructure.
Under the proposed norms, insurers and large distribution entities will have to disclose their commission policies and structures in a simple and accessible manner. Specified commercial policies will also carry commission disclosures, enabling customers to be aware of the distribution costs built into the pricing. The consultation paper also proposes tighter measures to curb mis-selling and compulsory bundling of insurance with other financial products.
These include documenting customer needs and suitability, bringing direct and indirect remuneration within the regulatory definition of commission, and prohibiting volume-linked or reward-linked incentives for bank and Non-Banking Financial Company staff selling insurance. IRDAI has further proposed linking the identity of the individual seller with each policy, placing information on mis-selling incidents in the public domain and allowing commission claw-backs in cases of mis-selling.
A key part of the proposed reforms is a reduction in insurers’ Expense of Management (EoM) limits. For life insurers, the EoM limit would shift to a company-level basis linked to Gross Direct Premium Income (GDPI), with the ceiling proposed at 15 per cent within two years and 12.5 per cent within five years. For general insurers, the calculation would shift from Gross Written Premium (GWP) to domestic GDPI, while the EoM limit would progressively decline from 30 per cent of GWP to 20 per cent of GDPI within five years.
Must Read
- Advertisement -
