IRDAI Proposes Major Insurance Distribution Overhaul

IRDAI has proposed a comprehensive overhaul of India’s insurance distribution framework through its consultation paper “Recalibrating Economics of Insurance Distribution”

Key proposals: -Lower expense limits: Life insurers’ company-level Expenses of Management (EoM) are proposed to move towards 15% of GDPI within two years and 12.5% within five years. For general insurers, the limit is proposed to decline from 30% to 20% over five years, creating a phased path toward lower operating and distribution costs. -Product- and effort-based commissions: Instead of a largely uniform framework, commission limits would depend on the insurance segment, product complexity, distribution channel and effort required for selling and servicing. Certain underserved locations could receive additional incentives to encourage wider insurance penetration. -Greater commission transparency: Insurers and large distributors would have to disclose their commission policies and structures in simple language. Commission disclosure could also become mandatory for specified large commercial policies, helping customers understand distribution costs. -Stronger anti-mis-selling safeguards: IRDAI proposes prohibiting volume- or reward-linked incentives for bank/NBFC employees selling insurance, restricting compulsory bundling of insurance with loans, making suitability an enforceable obligation and allowing commission clawbacks in cases of mis-selling. -Cost audits and website transparency: Mandatory cost audits are proposed for insurers and larger distribution entities, while certain distributors would have to publicly disclose key financial information. IRDAI has also proposed banning deceptive “dark patterns” on insurance websites. The measures remain proposals under consultation and could change before final regulations are issued. The measures remain proposals under consultation and could change before final regulations are issued.