The Insurance Regulatory and Development Authority of India (IRDAI) has removed the product-wise cap on commission payable by Life, General and standalone health insurers to intermediaries and instead notified that such payments will come under the expense of management (EOM) limits.
Key points
- Under the IRDAI (Payment of Commission) Regulations, 2023, notified on 26 March 2023, the insurance regulator has replaced the earlier individual cap on commission payments on insurance products with an overall cap on expenses of management of insurers.
- With this decision, life and non-life companies will have more freedom in offering commissions. Commissions are the compensation paid to and received by an insurance agent from an insurer for soliciting and procuring an insurance policy.
- Health insurance policies offered by Life and General insurance companies will also come under the ambit of the new regulations
- The removal of the cap on commission payments will positively impact the sector. The insurance companies are paying insurance intermediaries a commission of 15 per cent of the total premium business they are bringing in. The new regulation has removed the cap.
- The commission will have to be within their overall Expenses of Management (EOM) and insurers can have board-approved limits for paying commissions to their agents.
- IRDAI has asked insurance companies, including life and non-life, to fix an overall cap on commission to agents, brokers and other intermediaries, giving more flexibility to insurers in managing their expenses.
- With this, it has replaced the earlier cap on different commission payments to various types of intermediaries with an overall board-approved cap which should be within the allowed expenses.
- After this amendment, insurance agents are likely to be more interested in selling insurance products and explain policy details to consumers beforehand.
