IRDAI’s proposed commission curbs well-intentioned but flawed: Rajya Sabha MP to regulator
MP Urges Rethink on IRDAI’s Proposed Commission Curbs
Bharatmorningnews.com – IRDAI’s proposed commission curbs are well-intentioned, but Rajya Sabha MP Praveen Chakravarty has argued that the planned framework could create fresh problems for India’s insurance sector. In a letter to Insurance Regulatory and Development Authority of India Chairperson Ajay Seth, copied to Finance Minister Nirmala Sitharaman, he called for a more balanced approach to distributor compensation.
Chakravarty said the regulator is right to address excessive or poorly designed incentives. However, he warned that steep commission cuts and an extensive schedule of rates may weaken distribution networks, limit innovation and make insurance harder to access for people who need guidance before buying a policy.
“It is counter-intuitive, then, that IRDAI proposes large cuts in commissions for a role that, by its own admission, is vital to the industry.”
The concerns relate to IRDAI’s September 23 consultation paper, Recalibrating Economics of Insurance Distribution. The paper proposes lower commissions for insurance distributors and sets out almost 100 rates across product categories and sales channels.
Why insurance distribution matters
Chakravarty acknowledged that IRDAI has identified a real issue in the way intermediaries are incentivised. At the same time, he said any reform must support wider insurance coverage, channel long-term capital toward national projects and preserve the financial stability of insurers.
Insurance can be difficult for customers to assess without help. Buyers may need an intermediary to explain policy benefits, exclusions, premiums and whether a product fits their needs. This is especially important for households with limited familiarity with insurance products, including lower-income and rural consumers.
“A complex product that needs to be explained and sold, not understood and bought automatically.”
According to Chakravarty, commissions should not be treated solely as an expense. They also help insurers attract and retain capable agents, brokers and other intermediaries who explain products and provide customer support. IRDAI’s proposed commission curbs could therefore affect the quality and availability of advice if compensation falls too sharply.
He argued that a better system would reward high-quality intermediaries while taking firm action against mis-selling and repeat inappropriate sales. In his view, reducing compensation without addressing conduct could unintentionally encourage lower-quality distribution instead of improving consumer outcomes.
Concerns about a complex commission schedule
A second concern is the level of detail in the proposed framework. Chakravarty said the nearly 100 commission rates listed across four pages could create an unnecessarily complicated regulatory structure for insurers and distributors.
He compared the risk of such complexity with the experience of the Goods and Services Tax, where multiple rates created uncertainty and confusion. A large number of product- and channel-specific commission rules could increase compliance burdens and divert attention from customer service, product development and insurance expansion.
India has 26 life insurers and 45 general and health insurers, taking the total to 71 companies. Chakravarty said this level of competition should allow for a lighter, clearer framework that protects policyholders without prescribing a detailed rate for every situation.
He also cautioned that complex requirements may affect smaller and newer firms more heavily than established insurers. If compliance becomes too difficult, innovation could slow and larger incumbents may gain an unintended advantage.
Call for a balanced regulatory model
Chakravarty urged the regulator to examine insurance distribution approaches in Australia, South Africa, China and the United Kingdom before finalising the new rules. His recommendation was not to abandon reform, but to design a framework that is simpler, effective and suited to India’s market.
The debate over IRDAI’s proposed commission curbs ultimately centres on how to protect consumers while ensuring that insurance remains available, understandable and properly serviced. A framework that combines reasonable compensation, accountability for mis-selling and simpler rules may be more likely to meet those goals.
Frequently Asked Questions
What are IRDAI’s proposed commission curbs?
The proposals concern the commissions insurers pay to agents, brokers and other distributors. IRDAI’s consultation paper suggests lower commissions and sets out numerous rates based on products and distribution channels.
Why is the MP concerned about the changes?
Praveen Chakravarty believes substantial cuts could reduce the incentive for skilled intermediaries to sell and explain insurance products. He also considers the proposed rate structure overly complex.
How could policyholders be affected?
Policyholders may rely on intermediaries to understand coverage, exclusions and premium commitments. If distribution support weakens, customers could find it more difficult to compare products and choose suitable insurance.
Does the criticism oppose regulation of commissions?
No. The argument accepts the need to address excessive incentives and mis-selling. It calls for a simpler system that rewards quality advice while penalising poor conduct.