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12h ago EN
Calibrating commission caps crucial to widen insurance coverage under IRDAI's distribution reforms: Report
Commission limits under the Insurance Regulatory and Development Authority of India's proposed distribution reforms will need careful calibration to avoid slowing efforts to expand insurance coverage, particularly among first-time customers, a report said on Friday. The report from Redseer Strategy Consultants said insurance remains largely a "push product" in India, with about 95 per cent of retail premiums sold through assisted channels such as agents and brokers. Insurance penetration stood at 3.7 per cent of GDP in FY25, roughly half the global average, while premium growth has been driven largely by existing customers. Insurance for All by 2047 goal can only be reached by bringing in first-time, lower-ticket customers, who are among the costliest to acquire, so commission limits that fall below the cost of reaching and serving them could slow progress.IRDAI had released a consultation paper proposing reforms to insurance distribution economics, citing distributor remuneration growth that outpaced premium growth by four to five times between FY23 and FY25 even as overall coverage remained broadly unchanged. Feedback on the proposals is open until October 31. The proposals would lower insurers' expense limits to 12.5 per cent of premium in life insurance and 20 per cent in general insurance by FY2032, and introduce all-inclusive commission caps by product and channel, with lower caps for distribution entities than for tied agents and nil or nominal commission on mandatory and loan-linked cover. The report accepted the direction of the reforms, adding that evidence of high remuneration for limited selling effort is strongest in loan-linked channels. Average payouts to NBFC corporate agents in life insurance rose from about 7 per cent to 42 per cent of new business premium between FY23 and FY25. The same limits also apply to intermediaries that independently acquire and service customers, and the report finds that their calibration for these channels will shape the pace of coverage growth that Insurance for All by 2047 requires. Chhavi Singh, Associate Partner, Redseer Strategy Consultants, said that Insurance for All by 2047 target will require adding insured lives at about three times the recent pace, largely among first-time customers who rely on assisted distribution."As the Authority finalises the framework, comparing channels on their total cost of acquisition, supporting verified first-time buyers wherever they live, aligning renewal limits with servicing needs and phasing in the commission caps alongside the expense glide path could help the reforms deliver both efficiency and wider coverage," Singh said.
