The Department of Financial Services (DFS) has written to the Life Insurance Council and the General Insurance Council seeking explanations on why higher commissions have not translated into growth in premiums or new policy issuance, according to sources.
Regulatory Communication Details
In its communication, the DFS has also asked life, general and health insurers to submit suggestions on ways to reduce insurance commissions, amid concerns that rising distribution costs are not delivering commensurate expansion in coverage or business volumes. The move follows observations in the Insurance Regulatory and Development Authority of India's (IRDAI) annual report, which flagged a sharp rise in commissions even as insurers failed to meaningfully increase new policies, lives covered or premium collections.
Commission Effectiveness Under Scrutiny
The regulatory examination focuses on several key performance indicators:
| Focus Area: |
Regulatory Concern |
| Commission Levels: |
High payments not driving growth |
| Premium Growth: |
Stagnant despite elevated costs |
| Policy Issuance: |
Limited new customer acquisition |
| Cost Efficiency: |
Poor return on commission investment |
Deferred Commission Framework Development
The life insurance committee is scheduled to meet to finalise a framework for a deferred insurance commission model. The committee is expected to submit its recommendations to the IRDAI later this week. Sources indicated that the panel may propose different deferment periods for corporate and individual agents:
| Agent Type: |
Proposed Deferment Period |
| Corporate Agents: |
Five-year structure |
| Individual Agents: |
Three-year structure |
| Target Outcome: |
Better alignment with policy performance |
Industry Impact and Objectives
The proposed structure aims to better align distributor incentives with long-term policy performance and persistency, while easing upfront cost pressures on insurers. This development reflects the government's commitment to ensuring that high operational costs in the financial services sector translate into tangible benefits for both the industry and consumers, potentially leading to significant restructuring of agent compensation models across the insurance landscape.
18
