IRDAI’s proposed commission curbs well-intentioned but flawed: Rajya Sabha MP to regulator
IRDAI’s Proposed Commission Curbs Draw MP’s Concerns
Bharatmorning.com – IRDAI’s proposed commission curbs are well-intentioned, but Rajya Sabha MP Praveen Chakravarty has urged the insurance regulator to reconsider their design. In a letter to IRDAI Chairperson Ajay Seth, copied to Finance Minister Nirmala Sitharaman, Chakravarty said the planned changes could weaken distribution networks and slow insurance expansion.
He said IRDAI is right to address problems in sales incentives, including mis-selling and repeat policy sales. However, he warned that steep commission cuts and a highly prescriptive rate structure could create unintended consequences for insurers, intermediaries and policyholders.
“It is counter-intuitive, then, that IRDAI proposes large cuts in commissions for a role that, by its own admission, is vital to the industry.”
Why Insurance Intermediaries Matter
The debate follows IRDAI’s September 23 consultation paper, Recalibrating Economics of Insurance Distribution. The paper proposes substantial reductions in commissions paid by insurers to distributors and outlines almost 100 rates across four pages, varying by product and distribution channel.
Chakravarty argued that agents, brokers and other intermediaries remain essential because insurance products can be difficult for households to evaluate. Buyers often need help understanding policy wording, exclusions, premiums, benefits and long-term obligations before deciding on coverage.
This role is particularly important for rural communities and lower-income families, where insurance awareness may be limited. Chakravarty said a sound commission framework should encourage capable intermediaries to explain products properly while penalising unsuitable selling and repeated switching of policies.
“IRDAI needs a commission framework that attracts high-quality intermediaries but also penalises them for mis-selling or repeat selling.”
Concerns Over Complex Commission Rates
A major concern about IRDAI’s proposed commission curbs is the complexity of the suggested rate schedule. Chakravarty said a framework with nearly 100 rates could add compliance burdens for insurers and distributors, making the system harder to understand and administer.
He compared the possible complexity with the multiple rate categories under the Goods and Services Tax system. In insurance, an overly detailed approach could make it more difficult to determine which commissions apply across products and distribution channels.
India has 26 life insurers and 45 general and health insurers, taking the total to 71. Chakravarty said this level of competition should allow consumer benefits under a lighter-touch regulatory model, rather than one that may restrict experimentation and innovation.
He asked IRDAI to study regulatory approaches in Australia, South Africa, China and the United Kingdom before finalising the rules. The central challenge, he said, is to protect policyholders without undermining competition, service quality or new distribution models.
Impact on Brokers and Insurers
The proposed changes have drawn opposition from the insurance brokers’ forum and several insurance startups. Chakravarty said eight million brokers depend on the sector for their livelihoods and have raised objections to the plan.
He cautioned that a sudden overhaul could disrupt those participants while insurers still need to manage costs and remain financially stable. In his view, IRDAI’s proposed commission curbs should be refined so that they deter harmful sales practices without reducing access to informed insurance advice.
FAQ: IRDAI’s Proposed Commission Curbs
What are the proposed commission curbs?
IRDAI has proposed reducing commissions paid by insurers to distributors and introducing a detailed schedule of rates based on insurance products and distribution channels.
Why are brokers concerned?
Brokers and other intermediaries fear lower commissions could affect their earnings and reduce the incentive to provide policy guidance, especially in areas where buyers rely heavily on personal assistance.
What is the MP asking IRDAI to do?
Chakravarty has asked the regulator to simplify the framework, consider international practices and balance consumer protection with the need for effective insurance distribution.