Insurance Brokers Oppose IRDAI Plan to Cap Commissions

The Insurance Brokers Association of India (IBAI) is opposing a proposed overhaul of distribution commissions introduced by the Insurance Regulatory and Development Authority of India (IRDAI). In letters to the Prime Minister and Finance Minister, the IBAI warned that the regulator's plan to cap commissions for banks, brokers, and agents would risk 1 million jobs over five years and reduce intermediary revenues by up to 70%.

Detailed in a September 23 discussion paper titled 'Recalibrating Economics of Insurance Distribution,' the IRDAI proposal seeks to link commissions to product complexity and sales effort to lower costs for policyholders. Proposed caps include 2% to 5% for banks, 15% to 20% for initial health insurance, and 5% to 20% for first-year life insurance. IRDAI Chief Ajay Seth defended the changes, stating that insurers have earned excessively high commissions.

The IBAI argues the reforms remove the critical distinction between agents and brokers and implement a globally unprecedented architecture. The association contends that any savings would benefit insurance company owners rather than customers and could encourage unethical practices, such as disguising commissions as marketing fees. The IBAI has requested that the current framework remain until its 2028 review and has asked for an extension of the feedback deadline to December.