INSURANCE REGULATORY DEVELOPMENT AUTHORITY OF INDIA (IRDAI)

1. Context

2. Insurance Regulatory Development Authority of India (IRDAI)

• The Insurance Regulatory and Development Authority of India or the IRDAI is the apex body responsible for the regulation and development of the insurance industry in India.
• It is an autonomous body.
• It was established by an act of Parliament known as the Insurance Regulatory and Development Authority Act, of 1999. Hence, it is a statutory body.

3. IRDA Functions

• Its primary purpose is to protect the rights of the policyholders in India.
• It gives the registration certificate to insurance companies in the country.
• It also engages in the renewal, modification, cancellation, etc. of this registration.
• It also creates regulations to protect policyholders interests in India.

4. What does the new IRDAI rule say?

• IRDAI has asked insurance companies, including life and non-life, to fix an overall cap on commission to agents, brokers, and other intermediaries, giving more flexibility to insurers in managing their expenses.
• This means the regulator has replaced the earlier cap on different commission payments to various types of intermediaries with an overall board-approved cap which should be within the allowed expenses.

5. What is the Objective?

6. How will this move benefit insurance companies and agents?

• The insurance sector participants have welcomed the change in the regulation and termed it a major reform.
• They said the removal of the cap on commission payments will positively impact the sector.
• Currently, the limit of EOM in the general insurance business is 30 percent, and in health insurance is 35 percent.
• The insurance companies are paying insurance intermediaries a commission of 15 percent of the total premium business they are bringing in.
• The new regulation has removed the cap. However, the overall limit of EOM will remain.
• With the new regulations, an insurance company can pay a higher commission to an agent if the business brought in is good and claim-free.
• The liberty to give a commission to an agent is left to the company.
• The new norms will facilitate greater product innovation and the development of new product distribution models and lead to more customer-centric operations.
• It will also increase insurance penetration and provide flexibility to insurers in managing their expenses. Overall, it will smoothen adherence to compliance norms.

7. What benefit will consumers get?

• Post the changes in regulations, insurance agents are likely to be more interested in selling insurance products and explaining policy details to consumers beforehand.
• The claim ratio of these agents will also be better.
• When claim outgoes are within the overall manageable limit, an insurance company may not increase the premium, which will be beneficial for consumers.
• This move will also help in increasing insurance penetration as agents will get higher commissions.
• IRDAI said the regulation will come into force from April 1, 2023, and will remain in force for a period of three years thereafter. 

8. What do Expenses of Mangement mean?

• Expenses of Management (EOM) include all expenses in the nature of operation expenses of general or health Insurance business and commission to the insurance agents or insurance intermediaries.
• It also includes commission and expenses on reinsurance inward, which are charged to the revenue account.

For Prelims