The Insurance Regulatory and Development Authority of India (Irdai) has removed the individual cap on commissions paid by life insurance companies to intermediaries or agents, while stipulating an expenses of management (EOM) structure that insurers have to put in place.
The new rules, issued by the insurance regulator on 26 March, are effective this financial year. Hitherto, insurers paid 30-40% commission on each policy premium sold and also had a separate budget for their other expenses. Now, these companies will have a single budget that includes operating expenses as well as the commissions. Besides, there is an overall cap on such expenses.
The new EOM rule is aimed at helping policyholders get better pricing as the regulator has asked insurers to cut their expenses and pass on the benefit to customers. Industry experts, however, fear that this could lead to potential misselling of policies as insurers revise upwards their annual targets for agents.
As per the new rules, the EOM ceiling on pure risk plans (policies with premium payment terms of 10 years and above) will be 100% for the first-year premium and 25% of the renewal premium in subsequent years. As for other individual plans, the cap on first-year regular premium plans (except pension plans), will be 80%. The EOM ceiling will be 15% for deferred annuity and group term plans (see graphic).
Earlier, there was an individual commission cap on several policies. For instance, the maximum commission payable to an insurance agent or intermediary for the first-year premium was 40% for term plans (see graphic). It was 30% for all individual life plans except pure risk plans (for premium paying terms of 10 years and more) .
Why was EOM capped?
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