Why insurance brokers are opposing IRDAI's proposed commission reforms

The IRDAI proposed the changes in a discussion paper released in late September. Stakeholders have been asked to submit their feedback by October 25.

In Short

• IRDAI proposes linking insurance broker commissions to product complexity
• IBAI warns changes may risk 1 million jobs in distribution sector
• Concerns over possible unethical practices like disguised commissions

Insurance brokers have raised concerns over proposed changes by the Insurance Regulatory and Development Authority of India (IRDAI), saying the new rules could affect jobs and change how insurance products are sold.

The Insurance Brokers Association of India (IBAI) has opposed the proposals in letters sent to the finance minister and prime minister, according to documents seen by Reuters.

WHAT HAS THE REGULATOR PROPOSED?

The IRDAI proposed the changes in a discussion paper released in late September. Stakeholders have been asked to submit their feedback by October 25.

Under the proposed framework, commission levels would be linked to the complexity of an insurance product and the effort needed to sell it. Mandatory covers, such as third-party motor insurance, could attract little or no commission.

The proposed changes are aimed at bringing down insurance costs for policyholders.

BROKERS RAISE CONCERNS OVER JOBS

IBAI, however, has argued that the changes could have a wider impact on the insurance distribution sector.

The association said the proposals could shift money away from distributors and employees of insurance companies towards insurance company owners. It also pointed out that the proposed rules do not require any savings to be passed on to policyholders.

According to IBAI, the changes could put at least 1 million jobs at risk over a five-year period. This estimate does not include salaried employees working directly for insurance companies.

RISK OF UNETHICAL PRACTICES

The brokers' association has also warned that the proposed commission structure could encourage some insurers to find other ways to compensate distributors.

It said the changes could lead to a return of practices such as disguising excess commissions as “marketing fees”.

IBAI has also raised concerns about regulatory uncertainty, saying that a complete overhaul of the distribution system within months of allowing 100% foreign direct investment in insurance could make the sector less predictable for investors.

IBAI SEEKS REVIEW OF PROPOSALS

The association has urged the regulator not to introduce hard caps on commissions without first publishing an impact assessment.

It wants the assessment to cover the possible impact on policyholders, employment, public sector insurers and foreign investment.

IBAI has also sought a meeting with the finance minister and prime minister. It has asked that the existing framework remain in place until its scheduled review in 2028.

- Ends