The Narendra Bharindwal-led Insurance Brokers Association of India (IBAI) has written to the Prime Minister's office seeking intervention in a proposed insurance distribution reform issued by the Insurance Regulatory and Development Authority of India (IRDAI) last month.
IBAI is supportive of IRDAI's endeavours to curb mis-selling of insurance, but argues that the consultation paper's proposed commission caps and expense restrictions could hurt policyholders, insurance brokers, jobs, competition, and investment in the insurance sector.
In its consultation paper titled 'Recalibrating Economics of Insurance Distribution', the IRDAI proposed an overhaul of India's insurance distribution and commission frameworks.
These include over 30 commission caps across products and distribution channels and a roughly one-third reduction in insurers' overall expense limits, a clause that does not sit well with the IBAI.
The Brokers body argued in its letter that the cost reductions, if implemented, will primarily impact brokers, insurance employees, and insurers without a guarantee that customers will get lower premiums or better benefits.
Further, the letter outlined that policyholders may lose independent representation as IRDAI proposal does not differentiate between brokers who represent customers and distributors who sell products for insurers and replaces the internationally recognised term "insurance broker" with "Insurance Distribution Entity."
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IBAI also argued that the blanket commission cap remedy is not justified through data presented by IRDAI in its consultation paper. The letter outlined that general insurance expenses decreased from 28.2% of premium in FY23 to 26.5% in FY25 and premiums grew about 13% annually over the same period.
Of these, the highest comission levels were observed in loan-linked credit life insurance (42 to 45%) and dealer-driven motor insurance (up to 75%), whereas independent brokers and corporate insurance brokers earned only up to 18% and 11%, respectively.
Therefore, the association opposed the uniform caps that IRDAI put forward, as the comissions through different channels have a sharp disparity among themselves.
Most importantly, the IBAI flagged that the prosposed overhaul puts more than 10 lakh livelihoods at risk over a course of five years. The letter highlighted how brokers support 14.81 lakh of India's 27.18 lakh point-of-sale insurance workers and account for roughly 62% of motor insurance service providers (most of whom are self-employed).
"On IBAI's preliminary and conservative estimate, at least 10 lakh such livelihoods are at risk over the five-year glide path, before counting salaried staff of insurers," the letter underlined.
The overhaul could hurt jobs of sales staff, service staff, claims-handling staff and public-sector; while public-sector and smaller insurers might lose market share as their fixed costs are harder to absorb, as per IBAI.
The association also contended that such sweeping changes are not aligned with practices in most leading international insurance markets and will impact insurers unevenly.
IBAI also flagged concerns that the proposals could increase lender-driven insurance sales among MSMEs, in lieu of improving meaningful insurance penetration.
Hence, the brokers' association has urged the government to defer any new regulations until a comprehensive impact assessment is conducted and to facilitate consultations among key industry stakeholders to ensure that any reforms ultimately benefit policyholders.
Though, Not Everyone Is Against It
Even as the key stakeholders have pushed back against the proposed overhaul, a section of experts have lauded the government move, calling it a much-needed intervention to restore customers' trust.
"Every rupee of premium in this industry comes from your pocket and my pocket The entire industry is based on our money policy holders money. And for 27 years policy holder has been the last in the mind of the insurance regulator," personal finance author Monika Halan said during an interview with NDTV Profit.
She credited IRDAI's consultation and the association's new Chairman Ajay Seth for putting policy holders at the heart of the insurance industry "the way it should have been."
"We are asking for basic things. Tell me what the product is. Tell me what it can do. What does it cost? What does it cost to exit early? Will I get my claim or not? I think these are reasonable questions to ask to ask and get an answer," Halan remarked.
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