IRDAI warns insurance firms against commission payouts, urges them to take corrective action to reduce premiums

The Insurance Regulatory and Development Authority of India (IRDAI) has warned general and health insurance companies against rising commission payouts, which have led to higher premiums for insurance holders, CNBC-TV 18 reported, citing sources on Tuesday. The regulator has also urged firms to contain commissions to avoid strict actions in the future.

Life and general insurance companies pay commissions to agents, distributor banks, and other intermediaries for soliciting and procuring insurance policies.

In 2023, IRDAI removed limits on the payment of commissions to insurance intermediaries. The regulator made it mandatory for insurance companies to keep commissions below their overall Expenses of Management (EoM).

Higher commissions fueling insurance premium

On Tuesday, IRDAI raised concerns that insurers have significantly increased commission payouts over time. Consequentially, insurance holders are paying higher premiums for their policies, reported CNBC TV-18. The regulator has asked general and life insurance companies to reduce commission payouts and pass on the benefit to customers. Failure to do so may result in the implementation of limits on commission payouts in the next EoM review cycle.

Commission limit for agents

In 2023, IRDAI removed limits on paying commissions to insurance intermediaries. The announcement helped firms offer higher commissions to agents and allowed them to manage their expenses.

The main rationale behind the regulation in 2023 was to provide flexibility to life and general insurers so that they could manage their expenses. However, now IRDAI feels that higher commission payouts have resulted in higher insurance premiums for customers.

According to a recent LocalCircles survey released in February, over two-thirds of health insurance policyholders have felt their premiums have shot up by 50-200 per cent cumulatively over the past three years. The survey also revealed that 52 per cent of personal health insurance policyholders witnessed their insurance premiums increase by over 25% in the past year. The survey received over 35,000 responses from citizens located in 329 districts of India.