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Proposed tighter caps on insurance commissions could pose a slight earnings risk for banks, particularly through bancassurance fees from credit-protection products, as the insurance regulator seeks to recalibrate distribution costs and commission structures from FY28, Jefferies said in a research report.
Insurance regulator proposes to tighten caps on insurance commissions from FY28, Jefferies said, adding that the proposed rules would be applicable prospectively and that the regulator has sought public opinion on the draft norms over the next month. The brokerage said the changes would be tad negative for banks bancassurance fees, especially credit-protection premiums, which are largely single-premium products carrying relatively high commissions. The comments come after the Insurance Regulatory and Development Authority of India (IRDAI) proposed an overhaul of the insurance distribution framework, including lower expense limits, revamped commission structures and stronger safeguards against mis-selling. IRDAI has proposed replacing the existing distribution architecture with three broad categories -- Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions -- under a framework guided by the principle of same structure, same functions, same norms. A key proposal is to reduce insurers Expense of Management (EoM) limits. For life insurers, the EoM ceiling would be set at 15 per cent of Gross Direct Premium Income (GDPI) within two years and 12.5 per cent within five years. For general insurers, the limit would progressively decline from 30 per cent of Gross Written Premium to 20 per cent of domestic GDPI over five years. The regulator has also proposed recalibrating commissions based on factors such as business segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing policies. For banks and NBFCs, the proposals include tighter safeguards against incentives linked to volumes or rewards for employees selling insurance, alongside measures to bring direct and indirect remuneration within the regulatory definition of commission. Jefferies assessment suggests that the commission changes could affect banks fee income from bancassurance, with the impact more pronounced in credit-protection products because of their high upfront commission structures. IRDAI has invited comments from stakeholders and the public on the consultation paper by October 25, 2026. The proposed commission changes would apply prospectively, limiting the immediate impact on existing business. (ANI)
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