According to sources, the Insurance Regulatory and Development Authority of India (IRDAI) is set to bring about a major change in the country’s insurance sector. Insurance companies spend a considerable amount on agent commissions, and the regulator has expressed concern about this, instructing various companies to reduce these expenses. This directive has prompted significant activity within the country’s life insurance industry.

To find ways to reduce these costs, a nine-member committee was formed. This committee unanimously recommended moving away from the ‘front-loading’ commission structure to a ‘deferred commission’ structure.

What exactly are the changes coming to the commission structure?

Under the current rules, a 20-year term life policy pays up to 40 percent commission in the first year. However, under the proposed deferred structure, the first-year commission will be reduced to 8 percent. This 8 percent represents a portion of the total commission spread over five years. This 8 percent commission will also be paid only upon policy renewal.

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The committee is scheduled to submit this new deferred commission structure proposal to IRDAI on December 18th. This change will directly impact agents’ income, while also increasing the likelihood of lower premiums for customers in the long run.

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Similarly, IRDAI is also keeping a close watch on general and health insurance companies. They are dissatisfied with the high distribution and management costs of these companies. The regulator has requested cost-related data for the past five years. Currently, the limit for these expenses is 30 percent for general insurance and 35 percent for health insurance. Some companies have suggested that this limit be reduced by 5-10 percent for established companies. This move is expected to make the insurance sector more transparent and cost-effective.