Reforms put forward by the Insurance Regulatory and Development Authority of India (IRDAI) to cut distribution and operational costs could ease pressure on premium pricing, yet the body has not committed to any reduction in what policyholders ultimately pay. The discussion document outlines recommended adjustments to insurers' expense management frameworks, commission arrangements, sales-related incentives, and transparency requirements, all aimed at lowering operational costs and delivering greater value to those holding policies.
Whether premiums change will depend on how providers adjust their pricing in response to reduced expenditure. A source with knowledge of the sector, speaking on condition of anonymity, cautioned that drawing any firm conclusions about whether premiums would fall was premature at this stage.
In term insurance products, death-related risk carries substantially more weight in rate-setting than the cost of distribution channels, with premiums also adjusted periodically to reflect claims experience and other relevant variables. According to Amit Goel, Director at Equirus Raghnall Insurance Broking, the planned regulatory changes may place downward pressure on premiums, provided insurers choose to transfer reduced distribution expenses to policyholders. He noted that insurance premiums are shaped by a range of factors beyond commission rates, including claims history, reinsurance expenses, risk appetite, capital costs, and market competition, adding that a cut in commission does not automatically translate into lower premiums for policyholders.
The insurance regulator has put forward a plan to reduce Expenses of Management thresholds through a gradual, staged reduction schedule. Under the proposed framework, life insurers would face a company-level expense-of-management ceiling set at 12.5% of gross direct premium income. Under the proposed framework, general insurers would see their threshold shift from 30% of gross written premium to 20% of GDPI across a five-year period. Amendments to the methodology used for calculating EoM have also been put forward by the regulator, aimed at closing potential loopholes.
According to IRDAI, lowering operational expenses within the insurance sector could translate into greater benefits for policyholders, making the proposed changes relevant to everyday customers. The document noted that layered distribution structures and multiple intermediary tiers can drive up the expense of providing insurance coverage, with those added costs typically passed on to policyholders through elevated premiums and reduced value.
Goel identified the destination of savings generated by reduced distribution expenses as the central issue. Provided insurers transfer those reductions to policyholders, premium rates may face some downward adjustment. Reduced distribution expenses on their own would not be enough to bring down the price of insurance.
The reforms would additionally require insurers to provide policyholders with clearer information about distribution practices and associated fees. Under such an arrangement, any financial institution arranging a group health policy through an insurer on behalf of clients would be required to disclose the remuneration it receives from the premium payments. An anonymous sector specialist indicated that the proposed regulatory framework would enhance clarity around insurance offerings, structures, and how they are distributed. Consumers would gain a clearer picture of the offering, its pricing, and the benefits it delivers.
The document additionally recommends that policyholders settle insurance premiums via their personal UPI, credit or debit card, or linked bank account. Payments from external parties are not permitted. The regulator has put forward the guidelines aimed at curbing fraudulent practices and deceptive sales conduct.
The insurance regulator has put forward a plan to ban performance-based and reward-driven commissions for bank and NBFC employees engaged in selling insurance products. Overseas travel, high-value gifts, performance bonuses, and competition prizes are among the types of incentives the document identifies as potentially falling within the scope of the proposed regulatory framework. The measure additionally calls for enhanced transparency in the way insurance products are marketed and distributed.
Regulators may mandate a formal suitability assessment for high-value life insurance products, requiring providers to document each policyholder's individual needs. Securing a client's agreement or written approval alone would not be sufficient to protect an insurer or intermediary from liability where the product proves inappropriate.
Among the mis-selling practices outlined in the consultation paper are disguising insurance products as fixed deposits or high-yield investments, making unsubstantiated promises of guaranteed returns, marketing recurring-premium policies as one-time-payment products, and withholding information about the penalties for stopping premium payments. The regulator has further put forward plans to tie the identities of salespeople, agents, and other distribution staff to the policies they sell, with mis-selling data to be captured through a proposed Public Insurance Registry. The proposal also calls for insurers to recoup commissions in cases where products were inappropriately sold to customers.
Buyers and policyholders may see improved disclosure requirements and greater oversight over the way insurance products are marketed and distributed. Whether those savings reach consumers as lower premiums depends on how much of any cost reduction in distribution and operations gets passed through to buyers, alongside the broader range of variables that shape pricing across the insurance market.
