Insurance and insurance-linked stocks came under pressure after the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes to commission structures for life insurance policies. The proposed framework seeks to reduce incentives linked to first-year sales and encourage policyholders to continue with multi-year premium payment plans.
Insurance-related stocks declined by 10 per cent to 20 per cent on Thursday following the release of the regulator’s consultation paper on the proposed distribution reforms.
Commission Caps to Depend on Premium Payment Term
IRDAI has proposed maximum commission limits for individual linked and non-linked life insurance policies based on the premium payment term (PPT).
For policies with a PPT of less than five years, the proposed commission limit would be 5 per cent for distribution entities and 6.25 per cent for agents. For policies with a five-year payment term, the proposed caps would increase to 10 per cent and 12.5 per cent, respectively.
For payment terms of six to eight years, the limits would rise to 14 per cent for distribution entities and 17.5 per cent for agents. The proposed caps would increase further to 18 per cent and 22.5 per cent for nine-year payment terms.
For policies with a premium payment term of 10 years or more, the proposed limits would be 20 per cent for distribution entities and 25 per cent for agents.
The regulator said the commission structure should encourage distributors to support policyholders in continuing their multi-year payment plans rather than focusing primarily on first-year premium payments.
Lower Commission Proposed for Single-Premium Policies
IRDAI has also proposed lower commission limits for single-premium products and certain products that offer tax incentives.
For individual savings policies with a single premium, the first-year commission would be capped at 1 per cent for distribution entities and 2 per cent for agents under the proposal.
For single-premium pure term policies, the proposed limits would be 7.5 per cent for distribution entities and 10 per cent for agents.
Commission Structure to Cover Additional Benefits
The consultation paper proposes that commissions should include a wider range of payments and benefits associated with distribution. This would cover incentives, awards, reimbursement of selling expenses and non-cash benefits.
For single-premium term policies, the first-year commission could be up to 7.5 per cent for distribution entities and 10 per cent for agents. Meanwhile, multi-year premium term policies could allow first-year commissions of up to 25 per cent for distribution entities and 30 per cent for agents under the proposed framework.
The proposals are part of IRDAI’s consultation process and are aimed at reshaping the commission structure for life insurance distribution.
Disclaimer
This article is based on details contained in IRDAI’s consultation paper and is intended for general informational purposes only. The proposed commission limits are subject to the regulatory consultation and finalisation process and may change before any final rules are implemented. Readers should refer to official IRDAI notifications and documents for the latest information.