By Falaknaaz Syed

Copyright deccanchronicle

Mumbai:The new chairman of the Insurance Regulatory and Development Authority of India (IRDAI) Ajay Seth in his first industry level interaction with managing directors and chief executive officers has expressed concern about the high commissions paid by insurers to distributors and suggested that the industry explore the distribution model akin to mutual funds.According to industry officials, the regulator would form a panel to recommend ways to lower costs. The other issues discussed in the meeting were increasing insurance penetration, speedy settlement of health insurance claims, meeting rural and social sector obligations and motor third party obligations.The meeting between insurers and the regulator took place on September 17. According to sources, insurers suggested disclosing commissions on policy documents for greater transparency and are likely to submit a presentation on adopting a Total Expense Ratio framework followed by mutual funds.The insurance regulator in the past too has raised concerns over high commissions paid to distributors which is making health and motor insurance costlier for policyholders. While insurers are quick to blame medical inflation every time they raise your premium rates, the bigger culprit is the commission paid to agents. Non-life insurance,pure health insurers and even life insurers are paying commissions ranging from 15 per cent to as high as 45 per cent of your first-year premium to their distributors. According to experts, medical inflation is rising 10-12 per cent per annum. Similarly, motor insurance service providers are paid huge commissions on new private auto contracts ranging from 25-57 per cent.The overall mutual fund distributor commission in India typically ranges between 0.05 per cent to 2 per cent of the scheme’s AUM (Assets Under Management), depending on the product. However, the exact commission depends on factors such as AUM (Assets Under Management) of the scheme, TER (Total Expense Ratio), which impacts distributor earnings and slab or market share held by the mutual fund distributor in that scheme, as per SEBI’s trail commission model.On the other hand, insurance companies have the freedom to decide the commissions they want to pay to their distributors including agents, banks (corporate agents), brokers. In 2023, IRDAI removed limits on the payment of commissions to insurance intermediaries and instead put limits on the total expenses of management. The regulator made it mandatory for insurance companies to keep commissions below their overall Expenses of Management (EoM). The EOM was capped at 30 per cent of the gross premium in the case of general insurers and 35 per cent for a standalone health insurer. Before April 2023, the commission on health and motor insurance was about 19.5 per cent of the gross premium (commission of 15 per cent and reward of 4.5 per cent). The regulator is of the view that general and health insurers have misused the relaxation and raised commissions significantly negatively impacting policyholders. The decision to change the commission rules would be reviewed after 3 years i.e. in 2026.On the other hand, the overall mutual fund distributor commission in India typically ranges between 0.05 per cent to 2 per cent of the scheme’s AUM (Assets Under Management), depending on the product. However, the exact commission depends on factors such as AUM (Assets Under Management) of the scheme, TER (Total Expense Ratio), which impacts distributor earnings and slab or market share held by the mutual fund distributor in that scheme, as per SEBI’s trail commission model.