The insurance regulator’s proposal to standardise commission rates across products and lines of business, along with a uniform limit on management expenses, could push the industry towards an oligopolistic structure, giving competitive advantage to large insurers, according to industry players. They fear that the simultaneous cap on commissions and management expenses could constrain smaller insurers and newer entrants from spending adequately on customer acquisition during their growth phase.
The Insurance Regulatory and Development Authority of India (Irdai) on Wednesday released a public consultation paper, proposing specific caps on insurance commissions based on the insurance segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing the product. It also proposed an Expense of Management (EoM) limit of 15% of Gross Direct Premium Income (GDPI) for life insurers and a reduction in the EoM limit for general insurers to 20% of GDPI from 30%. For standalone health insurers, the proposed limit has been reduced to 30% from 35%.
“My big fear is that the industry will become an oligopoly because only people with a very large renewal book will be able to make a cut,” said the chief executive of a life insurer.
Irdai itself found wide variations in commission rates across products and insurers. For instance, the average first-year commission rates on individual life insurance policies ranged from 14% to 51% of first-year premiums, while the maximum commission ranged from 33% to 81%. For general insurers, average commissions on products including motor, health and property insurance ranged from 6% to 29% of premiums. At the same time, the maximum commission paid by insurers ranged from 32% to 93%.
“That’s because smaller players and new insurance companies need to pay a lot more upfront commissions to attract and retain agents and acquire new clients compared with large brands that have established books,” said the insurer cited above.
Disproportionate Impact
Irdai’s draft paper also shows the ratio of total expenses to GDPI varies significantly between large and small insurers. For instance, the total expense-to-GDPI ratio of a large general insurer with a 10% market share was 23% in FY26, compared with 40% for insurers with less than 1% market share.
Krishnamoorthy Rao, MD & Chief Executive, Generali Central Insurance, said having the same EoM percentage for all players may not be the right approach, as smaller and mid-sized insurers may have to incur higher expenses even to grow their business. He said, regardless of the size of the company or premium base, insurers are required to maintain several mandatory functions to meet regulatory requirements, including compliance, actuarial, secretarial, and legal functions, in addition to the manpower required for selling insurance.
“Everyone has to build their IT infrastructure and spend money there. Whether you are small or big, that spending is more or less the same for all companies,” Rao added.
“What is the incentive for somebody new to come into the country and set up a new sort of business? I don’t know how international investors look at this flip-flop every year,” another senior official at a private life insurance company.
“The critical part is that much of the plans with which newer players may have come in will go for a toss now. The key point is how new players like Kiwi, ProTec or Prudential HCL General Insurance look at this is crucial,” said a general insurance industry veteran.