Proposed insurance distribution reforms could encourage life insurers to expand agency networks, while tighter commission caps may reshape health and general insurance distribution.
India’s proposed insurance distribution reforms could accelerate the expansion of life insurance agency networks while putting greater pressure on health and general insurance distributors, according to Nomura Global Markets Research.
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed tighter Expenses of Management (EoM) limits and new insurance commission caps across products, distribution channels and geographies. The regulator has also proposed changes to the structure of insurance distribution.
Life insurers may expand agency networks
Nomura analysts said the proposed framework could encourage life insurers to scale up their agency channels. The report noted that individual pure-term products could retain a relatively supportive commission structure for agents compared with some other distribution channels.
Several life insurers already plan to increase their agency presence, and the proposed rules could reinforce that strategy, Nomura said. The framework also provides additional commission allowances for certain business sourced from smaller cities, towns and rural areas.
For life insurance policies with premium payment terms of 10 years or more, the proposal caps first-year commission at 25% for agents and 20% for distribution entities. The framework uses different limits for shorter premium-payment periods.
Health insurance faces tighter commission limits
The proposed health insurance commission structure could create greater pressure for distributors. Nomura said the proposed caps appear stricter than those for life insurance.
The regulator has also proposed eliminating commissions on new vehicle third-party insurance sold through certain channels, compared with the earlier 2.5% ceiling. Nomura said the change could affect how general insurers use vehicle dealers to expand their motor insurance business.
The proposed EoM changes would further alter distribution economics. General insurers would gradually move from a 30% EoM limit based on gross written premium to 20% based on domestic gross direct premium income over five years. Life insurers would move towards a 12.5% company-level EoM limit over the same period.
The proposals remain under consultation, with stakeholder feedback due by October 25. The final framework could therefore change before implementation.
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