“First of all, it’s a draft. They (IRDAI) will take comments from all stakeholders, including the industry and consumer groups, etc,” Malhotra said. “It is primarily… I think… in consumer interest, to reduce the cost and also, at the same time, to prevent and reduce mis-selling. They will take a call in the best interests of the consumer and industry.”
Matter for the insurance regulator
The governor said the decision on how insurance products should be distributed falls within the remit of the insurance regulator.
“This is in the realm of the insurance regulator to decide as to what and how they want to do distribution of insurance products,” he said. “… we have not firmed up our view on this. We will give our comments to them.”
What the draft proposes
IRDAI’s consultation paper, released in September, proposed linking distributor commissions to the complexity of sales and servicing rather than following a uniform structure. The proposed commission would depend on factors including the segment, line of business, distribution channel and product complexity.
As part of the distribution overhaul, the paper seeks to cap management expenses for life insurers at 15% of gross direct premium income within two years and at 12.5% within five years.
For general insurers, management expenses would be capped at 25% of gross direct premium income within two years and 20% within five years. The current cap for this category is 30% of gross written premium. The first year of the glide path would be 2027-28 (April-March), the paper said.Fee cut to offset the impact
To offset this, the regulator proposed reducing its fee to 0.04% from 0.05% of the premium, capped at ₹20 crore annually. This would reduce the total fee for all insurers except five and return up to ₹37,500 crore in premiums to the industry, according to the consultation paper.
IRDAI has sought stakeholder comments on the proposals by October 25.