In a move towards a more liberalized regime for payment of commissions to insurance intermediaries, the Insurance Regulatory and Development Authority of India (‘IRDAI’), by way of Notifications dated March 26, 2023 (which became effective from April 1, 2023), has notified three new regulations, namely: (i) the IRDAI (Payment of Commission) Regulations, 2023; (ii) the IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2023; and (iii) the IRDAI (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2023. In essence, these regulations replace the erstwhile framework of individual product-wise caps on payment of commissions to insurance intermediaries, with a simplified approach of overall limits on ‘expenses of management’ (‘EOM’) of insurers.

The key changes brought about by these regulations are as under:

i.     General insurers are allowed to incur EOM up to 30% of the gross written premium in a financial year, while stand-alone health insurers are allowed to incur EOM up to 35% of the gross written premium in a financial year;

ii.    For life insurers, the new framework provides for aggregation of separate allowable limits depending on gross written premium received on different life insurance products; and

iii.   Insurers are free to determine the amount of commission they wish to pay to insurance intermediaries (subject to approval by their board of directors), provided that the total amount of commission does not exceed the overall EOM limits set out above.

The new framework is intended to provide flexibility to insurers to manage their expenses within the overall limits based on their gross written premium. These changes are likely to have a positive impact on insurance penetration, by encouraging intermediaries (in particular, corporate agents such as private sector banks) to expand their distribution business and thereby boost revenue.