IRDAI provides more leeway to insurance companies. All you need to know

In what could provide more flexibility to insurance companies, India's insurance regulator has provided them more legroom in paying their commissions by linking limits to the overall portfolio and company management expenses.

The Insurance Regulatory and Development Authority of India (IRDAI) has pegged the utmost commission sanctioned for non-life products at 20% of the gross written premium in India during a particular financial year, a report in The Times of India said.

What more has the IRDAI told the insurers?

According to the ToI report, the insurers have been told by Irdai that their commission and remuneration payout should be based on a board-approved policy which will be reviewed on a yearly basis. No commission shall be payable to insurance agents or the insurance intermediaries in the direct business, and the insurers must grant discounts on the premium.

What more do the new regulations say?

The report says that the commission limit will stay but, henceforth, it will be at the portfolio level limit and not an individual line of business. This means that a company that does more group health business at a low commission will have more headroom than a company with more individual health insurance businesses. Some insurers feel that even if limits are set at the portfolio level, regulations should not blend wholesale and retail portfolios for calculating commission ceiling.

Are the new rules at variance with what the industry had sought earlier?

Yes, slightly at variance. The report points out that earlier there was a suggestion from some industry members to disclose commissions, and the Irdai has clarified that it is not allowing such disclosures. But with commissions being freed, insurers are again saying that, at least in the wholesale business where buyers negotiate, insurers should be asked to disclose commission.

So, do the insurance companies see some positives out of these new regulations? 

Yes. they say that insurance companies which were spending more on sales using the marketing route could now spend the money on commissions.