MUMBAI: Insurance sector regulator Insurance Regulatory and Development Authority of India (Irdai) has removed the individual ceiling of commission to be paid by insurers for the sale of their product.
The new rules, which aim to provide flexibility to the insurers to manage their expenses and are set to come into effect from April 1, will allow insurance companies to offer commission up to the expenses of management (EoM) limit. EoM is the sum total of management expenses (including salary, fixed expenses, commissions, etc) incurred by insurers.
“The Insurers shall ensure that their expenses of management are within the allowable limit on the overall basis. Where the insurer has exceeded the allowable limits of expenses of management, the excess of such expenses shall be charged to the Profit and Loss Account,” the regulator said in the notification.
The board of an insurance company should frame commission policy keeping in mind the interest of the policyholders and agents, said Irdai.
Currently, different segments of the insurance business have different commission limits and commissions for the product are approved by the insurance regulator, depending on the policy. The insurance industry has welcomed the new rules and said it will fuel growth and innovation in the industry.
“The regulatory change is an eagerly awaited and path-breaking reform by IRDAI. The removal of the cap on commission payments will positively impact the insurance sector. It will facilitate greater product innovation, development of new product distribution models and lead to more customer-centric operations,” Anil Kumar Aggarwal, MD and CEO at Shriram General Insurance told TNIE.
“It will also increase insurance penetration and provide flexibility to insurers in managing their expenses. Overall, it will smoothen adherence to compliance norms,” he added.