IRDAI Board to Discuss Key Reforms on Commission, Bancassurance on Nov 25

Sources have revealed that the Insurance Regulatory and Development Authority of India (IRDAI) is due to discuss numerous key reforms relating to events including commission payouts, bancassurance tie-ups, expenses of management (EoM), and capital limits at its next board meeting scheduled for November 25th, 2021. Long-standing proposals submitted by the IRDAI’s Insurance Advisory Council will be the main focus of these discussions. According to inside sources, these proposals include an increase in the maximum rate of renewal commissions, an introduction of discounts on premium for directly sourced policies, and relaxation in EoM limits.

Relaxation of EoM Limits to Benefit Bigger Players More

The potential relaxation of EoM limits would benefit the insurance industry, especially the larger players who currently have a larger renewal book. Mr. Vighnesh Shahane, MD, and CEO of Ageas Federal Life Insurance, commented that there is likely to be a little more weightage given to the renewal book as a result of this relaxation. Currently, there is no flexibility for insurers who have lower than 100% of EoM. If approved, this modification could give more headroom to insurers to pay higher distributor commissions, as suggested by industry players.

Proposed Changes to Allowable Expenses and Tie-Ups

Other proposals to be discussed include an increase in the allowable expense or renewal premium up to 17.5% from the current limit of 15% as well as the provision of additional allowable expenses for more capital-intensive verticals such as rural business, government schemes, and insurance awareness. The IRDAI is also expected to consider increasing the number of insurance tie-ups that a bank can have, as currently the limit is three for each life, health, and general insurance company.
According to reports, the council has proposed a maximum of nine tie-ups each, although industry participants believe that this may not be allowed as most banks currently do not even use their available ties.

Relaxing the Capital Requirements for Micro and Regional Insurance Companies

In addition, the IRDAI might also consider regulating the capital requirement for micro and regional insurance companies, opening up the insurance sector for investments by private equity (PE) firms, and increasing the cap on insurance tie-ups for insurance marketing firms.
In conclusion, insurers in the sector stand to gain from these long-awaited recommendations and regulations which will bring changes to commission payouts, expenses of management, bancassurance tie-ups, and capital limits, among other key reforms proposed.
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