The Insurance Regulatory and Development Authority of India (IRDAI) announced in its recent update the removal of the cap on the commissions earned by agents, brokers and online insurance aggregators. Unlike the previous agent cap, the insurance industry now decides commission payments based on their operating costs.
This is indeed a welcome change for those involved in selling insurance policies. Insurance companies in India are welcoming the move, citing more flexibility in managing expenses. However, will this move affect those looking to purchase insurance in the near future?
Many people have questioned whether this move would encourage mis-selling of insurance products. They believe that allowing insurers to set commission levels at any level increases their likelihood of taking advantage of gullible customers.
Naval Goel, Founder and CEO of PolicyX said: “This will not affect actual commissions. Commissions will be market driven and increase efficiency in the market and should help increase market penetration. Overall, policyholders should not be impacted to a large extent. This should in no way affect the mis-selling, as insurance companies are currently also paying commissions in other ways.”
Ideally, the caps should protect customers. After that lid was blown, many people have highlighted how this move has given insurance companies already at risk some much-needed respite, especially during the Covid-19 pandemic. Does this mean that IRDAI cares more about their agents at the expense of policyholders?
Sumit Ramani, actuary and co-founder of ProtectMeWell.com said, “The payment of the 2023 Provision of Regulations should be viewed in light of the 2023 Administrative Regulations expenditure. While the commission structure is flexible, there is still an overall cap on expenses attributable to operating expenses. In principle, insurers now have the option of aligning commission structures with business efficiency, strategy and maturity. Likewise, there is a clear push from regulators to invest in insurance awareness and insure tech initiatives as regulation allows for additional spending on them.”
Ramani added: “In my view, insurers would be working towards better cost control and the use of technology. The insurance companies that focus on assisted sales would be the first beneficiaries. From the customer’s point of view, the changes would become visible in the medium term. While it is difficult to predict how it would play out, I can only see positives here.”
Viral Bhatt, Founder of Money Mantra said: “Removing the cap on commissions earned by agents, brokers and online insurance aggregators can have both positive and negative implications. On the one hand, this could encourage more agents and brokers to enter the insurance market, which could lead to increased competition and potentially better services to customers. On the other hand, it could also lead to higher insurance policy premiums and fees to cover the increased commissions.
“The lifting of the cap may also affect the impartiality of advice given by agents and brokers, as they may be incentivized to sell policies that offer higher commissions than what is best for the customer.
Overall, it is difficult to predict how the removal of the cap will affect prospective insurers in the long term. It will depend on how insurance companies and intermediaries react to the change and whether they succeed in finding the balance between profitability and customer needs. It’s always wise to research insurance policies thoroughly and consult multiple sources before making a decision,” Bhatt added.
Suresh Sadagopan, MD & Principal Officer, Ladder7 Wealth Planners said: “In general, it is good for the regulator to set the rules and ensure that collusion is not possible, allowing market forces to determine compensation, premiums, etc. Encouraging competition and ensuring a vibrant market is key to making this work well. In this respect, what IRDAI is doing is correct. However, you must be vigilant.”
Not many people think this would adversely affect intended policyholders. Whether this regulatory change would be game-changing and pave the way for further changes in the insurance sector is best left to time and to people who tend to insure for the long term.
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