Mumbai: Former Member of Insurance Regulatory and Development Authority of India (break up) fear that the regulator’s proposal to provide flexibility to insurance companies Commissions may result in them passing on related costs. policyholders,

Last week, IRDA proposed lifting of commission on individual lines of non-life business subject to a maximum limit of 20%. There is also an overall spending limit of 30% for non-life and 70% for life companies. Linking commission to the overall expense limit also ensures that only low cost efficient insurers will have room to pay more. commission, Similarly, in the life sector, there is a discount on commission on certain lines.

The relaxation has been widely welcomed by analysts tracking insurance companies. However, former regulators have some concerns.

“Even in a rapidly changing economic world, there are some fundamental principles that remain unchanged. All expenses incurred by insurers are paid for from policyholders’ funds. The law had restrictions on commissions and management expenses to ensure that Insurance companies its former non-life member of Irdai KK Srinivisan said, “The basic function of managing the pool of funds of policyholders at minimum cost.” He said that if some companies negligently increase commission, this purpose will be defeated. “Ultimately, policyholders have to pay exorbitant costs to insurers, which will result in an abnormal increase in premiums,” he said.

According to Nilesh Sathe, former member (life) of IRDA, there was a commission limit of Rs 10 lakh on group-funded policies such as gratuity and annuity or retirement. Removing the limit can lead to high churn and unhealthy behavior for businesses in large companies. “Commission rates for short-term premium products are hiked and will be applicable to new policies. For policies with a premium-paying term of 5 years, the commission payment will be 25% higher. This will affect the internal rate of return of these policies,” He added.

Sathe pointed out that it is not clear what the callback mechanism is for companies that promise to meet the statutory expense ratio to avail flexibility on commission, but fail to do so.