The final regulations on remuneration for intermediaries is expected to be released by end of March, TS Vijayan, Chairman, Insurance Regulatory and Development Authority of India (IRDAI) said here on Wednesday.
The insurance regulator reiterated that the cap on commissions for brokers will continue to stay and cannot be removed completely. A sub-committee has been formed which will discuss and decide on the quantum of cap on commissions. The final regulations are expected to be effective from April 1, 2016.
Inaugurating the 12th Insurance Brokers Association of India summit in Hyderabad, Vijayan said, “There has to be transparency in commission to brokers. Regulations can create a viable environment and cap on remunerations for intermediaries cannot be removed,” he said. “However, IRDAI is ready to discuss the quantum of cap. The final regulations is expected to be released by March end,” he added. The draft regulations, which was released last month, allows commissions from 15% for the retail segment and varies across segments.
“We have to look at commissions at market level and not company level,” he said while deciding on the quantum of remunerations. The sub-committee, after studying the prevailing incentive structure among various financial products, would suggest measures to discuss on the rationalisation of commissions across financial products.
There are over 350-odd brokers across life and non-life segment in the country. “Adapting to the requirements of financial intermediation in the digital era will be a challenge for the broking community” Vijayan said.
According to Sanjay Kedia, President, Insurance Brokers Association of India (IBAI) said IRDA should liberalise commissions and allow market forces to determine them. “All components in the industry is liberalised except the cap on remunerations,” he said. All stakeholders – the regulator, insurers and brokers – will need to emphasise customer-centric growth, especially innovation, need-based niche products, technology, and a seamless claims service to increase insurance penetration and density in the country.
Besides, brokers have also demanded a reduction in penalties. They have argued that as their size is smaller as compared to an insurance company, they cannot be treated on the same footing as insurers while imposing penalties.
Meanwhile, IBAI in association with Ernst & Young released a report, ”Vision 2025: Brokers driving customer-centric growth”. According to the report, the domestic insurance market is likely to expand. It estimated that the broking channel had the potential to contribute almost 40% of the gross direct premium in the non-life insurance business and 1.6% of the new business premium in the life insurance business in the coming years.
“The brokers’ share of the total non-life insurance market is rapidly growing and is already at about 27% of the total market. The single biggest reason is because brokers represent customers’ interests. With increasing complexity and choice in the insurance market in terms of insurers, products, pricing and claim service, customers are increasingly choosing the broking channel to represent their interests. We are definitely poised for a higher growth over the next few years,” Kedia said.
However, the exact nature of growth and relevance of brokers in the market will primarily depend on the collective actions taken by the stakeholders, including the regulator, insurers and brokers. In FY15, the total premium was Rs 83,048 crore in the non-life segment; this is likely to rise to Rs 4,00,000 crore in FY25, if progressive actions are taken. Similarly, for the life insurance segment, new business premium – at Rs 1,13,327 crore in FY15 – is tipped to rise to Rs 4,60,000 crore by 2025.