Seth said the proposals in IRDAI’s September consultation paper, ‘Recalibrating Economics of Insurance Distribution’, are not simply about cutting distribution costs. Instead, the broader objective is to make the insurance sector more efficient and ensure that the economics of the business work better for policyholders.
“This paper is not merely about bringing distribution cost down. It is about having a far more efficient insurance sector,” Seth told CNBC-TV18.
He said the proposed changes should be viewed against the increase in costs over the last seven years.
“The way costs have gone up in the last seven years, going back to that level shouldn’t be seen as a shock….We were that efficient and we should be able to go back to that position,” he said.
‘If anyone has to be shocked, it has to be the policyholders’
Seth also pointed to the sharp increase in commissions in the insurance sector.
“Commissions at 38% now, sharp surge from 8% few years ago,” he said, arguing that such increases need to be examined in the context of what customers ultimately pay for insurance.
Seth also pointed to profitability in the sector, saying “over 44% profit after paying taxes are too high for a financial services sector”, as he made the case for bringing insurance costs down.
He also highlighted the rise in the cost of doing business at one of the largest private insurers, saying it had “cost of business of less than 12%” earlier, which has now risen to 18%.
“If anyone has to be shocked, it has to be the policyholders,” Seth said.
He stressed that the consultation paper is aimed at improving productivity across the insurance ecosystem rather than targeting distributors alone.
“Be it insurer, distributor or regulator, paper is about everybody becoming far more productive,” he said.
Seth said the regulator’s objective is to “get the economics of the insurance sector right”, adding that greater competition and more players would be important for creating value in the industry.
Also Read: New insurance proposals: Key takeaways for policyholders from IRDAI paper
Focus on competition, transparency
The 160-page consultation paper proposes changes to commissions, remuneration and distribution arrangements across insurance segments. It also proposes tighter controls around expenses of management, measures to address dark patterns and a framework for Mutual Insurance Intermediaries (MIIs).
For policyholders, the proposed changes could affect how insurance products are presented, compared and sold, as well as the incentives for intermediaries.
Seth said there is considerable interest from new players looking to enter the insurance sector and that greater competition can help improve efficiency.
He also highlighted the need to bring down the cost of doing business, particularly in health insurance.
“Cost of doing business has to be lower especially for health insurance,” Seth said, while stressing that “transparency has to be of the highest order”.
IRDAI stepping up industry consultations
Seth said IRDAI has been actively engaging with industry participants on the proposals. He said he has met smaller groups of insurers, all of whom have been supportive of the new paper, and is scheduled to meet insurance CEOs in Delhi on October 5.
The regulator has invited stakeholders to submit their feedback on the consultation paper until October 25.
Seth said the proposed commission framework also provides for additional commission in smaller cities and towns that remain underserved.
He explained that Insurance Distribution Entities (IDEs) are designed as an open architecture, while Insurance Distribution Persons (IDPs) can sell products only from insurers with which they have a tie-up.
Insurer or distributor, not both
Seth also weighed in on Managing General Agents (MGAs), saying there is currently “no economic rationale” for the model.
“You can be an insurer or a distributor, you cannot be both at a time,” he said.
He added that the regulator’s approach is intended to ensure that the roles of manufacturers and distributors remain clearly separated.
The consultation paper is currently open for stakeholder feedback and could be revised before IRDAI finalises the regulatory framework.
Healthcare costs, dark patterns in focus
Seth clarified that the cost of healthcare services is not within the insurance regulator’s domain, but said claim settlement can be standardised to ensure it is timely and consistent. He also suggested that healthcare providers and insurers could come together on a common platform to address claim-settlement issues.
On dark patterns, Seth said customers have a right to know the product details, pricing and quality of service before making a decision. “These products are made for the masses and the public has the right to know whether it fits their requirement,” he said, adding that entities seeking personal details merely to provide such information could be violating existing laws.