The Insurance Brokers Association of India (IBAI) has asked Finance Minister Nirmala Sitharaman to intervene in the proposed changes by the Insurance Regulatory and Development Authority of India (IRDAI) concerning the economics of insurance distribution.
The association has raised concerns that the proposed changes could affect employment, competition and the choices available to policyholders. In a letter dated October 2, IBAI urged the government not to notify the proposed commission and expense-limit regulations without first conducting and publishing an impact assessment.
IBAI has also sought continuation of the existing 2023 framework until its scheduled review in 2028.
IBAI Raises Concerns Over Commission Caps
The request follows IRDAI’s consultation paper, “Recalibrating Economics of Insurance Distribution,” released on September 23. Stakeholders have been invited to submit their comments by October 25.
IBAI said it supports measures aimed at tackling genuine mis-selling concerns, including preventing compulsory bundling of insurance products with loans and strengthening suitability requirements.
However, the association has opposed the proposed system of more than 30 separate commission limits across various products and distribution channels. It has also objected to the proposed one-third reduction in insurers’ overall expense limits.
10 Lakh Livelihoods Could Be at Risk
According to IBAI, the insurance distribution sector currently provides employment to more than 83 lakh people, including individual agents, micro-insurance agents, point-of-sale persons and other intermediaries.
The association estimates that the proposed reduction in expense limits could put around 10 lakh livelihoods at risk over five years. It has argued that insurers may respond to lower expense limits by reducing employees involved in sales, servicing and claims instead of achieving the entire reduction through efficiency improvements.
IBAI has also expressed concerns that product- and channel-specific commission restrictions could encourage alternative payment arrangements. According to the association, this could create compliance challenges similar to those that the 2023 reforms sought to address.
It cited ₹824 crore in allegedly bogus GST input credit involving 15 insurers before 2023 as an example of the issues it believes need to be considered.
Brokers Question Benefits for Policyholders
A major concern raised by IBAI is whether lower distribution expenses would necessarily result in cheaper insurance for customers.
The association has pointed out that the consultation paper does not establish a specific mechanism to ensure that savings from reduced commissions and expenses are passed on to policyholders.
IBAI has also highlighted the role of independent insurance brokers. According to the association, brokers are appointed by customers to compare insurance products, negotiate coverage and provide assistance during the claims process.
Instead of imposing strict commission caps, IBAI has proposed continuing with the 2023 expense-of-management framework, while introducing tighter rules for calculating expenses if necessary.
The association has additionally suggested that in cases where insurance is force-sold and claims ratios remain below a prescribed threshold, insurers could be required to refund premiums or reduce renewal premiums.
IBAI has requested a meeting with Finance Minister Nirmala Sitharaman before the October 25 stakeholder feedback deadline. The association has maintained that its concerns are not against reform in the insurance sector, but relate to measures that it believes should ultimately provide clear benefits to policyholders.
Disclaimer: This article is intended for general informational purposes and is based on the details provided in the source material. Regulatory proposals may change following consultations and final decisions by IRDAI or the government. Readers should refer to official regulatory notifications for the latest applicable rules.