Now Reading: IRDAI proposes cap on insurance expenses, may lower premiums
-
01
IRDAI proposes cap on insurance expenses, may lower premiums
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed stricter limits on insurance companies' expenses and distribution commissions. In a consultation paper, the regulator suggested capping life insurers' expense of…
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed stricter limits on insurance companies' expenses and distribution commissions. In a consultation paper, the regulator suggested capping life insurers' expense of management (EoM) at 15% of gross direct premium income (GDPI) in two years and 12.5% in five years, with some companies targeting 10% in five years. For general insurers, the proposed EoM cap is 25% in two years and 20% in five years.
The move is intended to reduce the cost of insurance, potentially leading to lower premiums for customers. However, experts caution that savings may not automatically translate into cheaper premiums. Indraneel Chatterjee of InsuranceDekho said lower expenses could create room for premium reduction, but the extent of savings for customers is unclear. Shilpa Arora of Insurance Samadhan noted that a cut in commission alone will not reduce premiums.
The proposals also aim to increase transparency in commissions. IRDAI has invited suggestions until October 25, 2026, after which final rules will be framed. The actual impact on premiums will depend on the final regulations and how companies deploy savings, whether towards technology, claim processing, or customer service.
Indian Opinion Analysis
IRDAI's push to cap expenses marks a shift from its earlier approach of letting market forces determine costs. The regulator has previously tightened norms on surrender value and policy cancellation charges to protect policyholders. The real test will be whether companies pass on savings or absorb them to improve margins, as seen after the 2018 move to cap life insurance commissions. Small-ticket policies in tier-2 and tier-3 cities could face distribution challenges if agents shift focus to higher-premium products. The next milestone is October 25, 2026, the deadline for public comments on the proposals.
IRDAI's consultation paper is the latest in a series of moves to make insurance more affordable and transparent. The regulator has previously tightened surrender value norms and mandated clear disclosure of policy charges.
Source: bazaar.businesstoday.in
This brief was synthesised by AI from the source linked above.
