The Insurance Regulatory and Development Authority of India (Irdai) Chairman Ajay Seth has flagged the high distribution costs of brokers and insurance intermediaries, saying some have expense structures matching or even exceeding those of insurance companies.

“There is no reason why distributor brokers, some of you, should have expense structure matching or exceeding that of insurers,” Seth said at the Silver Jubilee programme of the Insurance Brokers Association of India (IBAI) in New Delhi on Saturday.

Seth outlined a nine-point expectation of the regulatory system while addressing the community of brokers, insurance company heads, policymakers and insurance professionals. On financial prudence and the health of the sector, Seth said the regulator has received representations on cost structures of some large brokers, where expenses account for 30% or more of the premium earned.

“That sets us thinking about what is happening in the sector. If 30% is the cost of the broker, who will do the business there after?” Seth wondered, adding that there is something missing about the cost models adopted by the industry. 

His remarks come months after the regulator sought granular data from insurers and intermediaries, including brokers and agents, aimed at massive distribution reforms. The consultation paper is expected to be released before the end of July. 

Last month, Irdai came out with a consultation paper proposing enhanced disclosure norms for insurance intermediaries that earn more than ₹10 crore in commission in a financial year. 

Seth said the Point of Sales Person (PoSP) model is an integral part of the insurance ecosystem but should not become a channel that pushes up distribution costs. “But that (PoSP) is not a channel which should push up the cost of distribution. You have to find a better way of reaching out,” he said.

Seth said the regulator’s approach is to encourage transparency, put in place the right mix of incentives and disincentives before resorting to prescription as the last option. 

He pointed out that while brokers represent policyholders, sell insurance products and assist during claims, but are paid by insurers. “I will not tell how much I earn to the policyholder, who is ultimately paying the price. There’s a contradiction,” Seth said.  

He urged the broking community to be more transparent by sharing information on products, pricing, insurers’ performance, brokers performance, placement of risks and the challenges involved so that policyholders can make informed decisions.

Seth also flagged instances where brokers expect insurers to maintain the same pricing across all distribution channels. “This is something which is happening in a few lines of business, which is not a right thing to do and that will not earn the trust of the policy holders,” he remarked.

He also asked brokers to be fair to insurers, particularly in the corporate and commercial insurance segment. “Don’t create pricing pressure. The insurer needs full information about the risk, about the past history to underwrite the risk better.”