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Life insurers with a higher share of credit-life business in their Annualised Premium Equivalent (APE) could benefit from the insurance regulators proposed changes in insurance commission rates, according to a report by Centrum.
The report said the proposed regulations by the Insurance Regulatory and Development Authority of India (IRDAI) could lead to lower commission payouts and tighter expense controls across the life insurance industry. It said, We believe life insurers will benefit from lower commission rates, especially for companies with higher credit life proportion in APE. The report stated that the insurers with higher credit-life exposure could benefit from the sharp reduction in commission rates for such products. Under the proposed framework, commission rates for credit-life products could be reduced to 2 per cent. The report said the changes could also push insurers to focus more on retail protection products, maintain leaner expenses and adjust their business strategies as distributors respond to lower commissions. Structurally, we expect insurers to focus more on retail protection, maintain leaner expenses, and see lower volumes in select categories as distributors adjust to reduced commissions, Centrum said. Under the proposed IRDAI regulations, company-level Expense of Management (EoM) caps for life insurers would be tightened to 15 per cent of Gross Direct Premium Income (GDPI) within two years, starting from FY28. The cap would then be reduced further to 12.5 per cent within five years, replacing the current aggregate ceiling. Centrum said the top-performing low-cost insurers could eventually bring their expense levels down to around 10 per cent. To enforce the new expense boundaries, commission payouts would be capped depending on the product structure, policy duration and distribution channel. The proposed commission rates range from 25 per cent for individual agents selling long-term policies of 10 years or more to 2-10 per cent for single-premium policies. The proposed framework would also bring indirect payouts within the statutory commission limits. Marketing allowances, infrastructure support and travel incentives would have to be included under the commission caps, aimed at preventing companies from using such payments to bypass the limits. The proposed changes also seek to address mis-selling concerns in bancassurance and NBFC-led distribution. Financial institutions would be barred from linking approval of credit facilities to the purchase of insurance products. In addition, volume-linked bonuses, international trips, contests and gifts for employees of banks and NBFCs would be prohibited under the proposed framework. The report said open-architecture distribution models would be incentivised through higher commission ceilings compared with exclusive tied arrangements. This could help reduce competition among insurers for preferred distribution space through higher payouts. (ANI)
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