At a press interaction on Tuesday (October 6), IBAI President Narendra Bharindwal said the association had sought more time to examine the proposals and submit its views.
IBAI has raised concerns over parts of IRDAI’s consultation paper, “Recalibrating Economics of Insurance Distribution”, released on September 23, particularly the proposed changes to commission structures and insurers’ overall Expense of Management (EoM) limits.
Bharindwal said the focus of the reforms should be on improving outcomes for policyholders rather than simply reducing distribution costs.
“The opportunity before us is not reducing costs but improving outcomes of insurance,” Bharindwal said, adding that “choice matters to policyholders”.
IBAI has also questioned whether any savings from lower distribution costs would necessarily be passed on to policyholders. In its October 2 representation to Finance Minister Nirmala Sitharaman, the association said the consultation paper does not specify a mechanism to ensure that such savings translate into lower premiums for customers.
“The reforms should attack the actual problems of mis-selling, forced selling and claims dishonoured,” Bharindwal said.
The association said it supports measures in the consultation paper aimed at addressing genuine mis-selling, including the proposed prohibition of compulsory bundling of insurance with loans and stronger suitability requirements.
However, IBAI has raised concerns over proposed commission caps across products and distribution channels and changes to insurers’ overall EoM limits. It has argued that the proposals could affect insurers, intermediaries and the wider distribution network.
The association has sought continuation of the EoM framework introduced in 2023 until its scheduled review in 2028. It has argued that the 2023 reforms removed earlier product-level commission sub-caps and gave insurers greater flexibility in determining operating and distribution expenses, subject to the overall EoM limits.
IBAI has expressed concern that the proposed framework could reintroduce detailed commission sub-caps based on product, distribution channel and nature of business.
The association has also argued that such changes could encourage alternative payment arrangements and potentially recreate compliance issues that, according to IBAI, existed before the 2023 reforms.
On employment, IBAI cited IRDAI data showing that insurance distribution supports more than 83 lakh professionals, including agents and point-of-sale persons. The association has estimated that at least 10 lakh livelihoods could be at risk over a five-year transition period if the proposed changes are implemented, although it described this as a preliminary estimate.
IBAI has also raised concerns over policyholder choice and the role of brokers, arguing that intermediaries help customers compare insurance products, negotiate coverage and obtain claims support.
The association has sought a published impact assessment covering policyholders, employment, public-sector insurers and foreign investment before any new regulation on commissions or expense limits is notified.
It has also requested that the Department of Financial Services convene IRDAI, insurance councils, LIC, GIC Re and IBAI before any draft regulation is issued.