Commission caps may fuel premium inflation, reverse savings for policyholders: Thomas Devasia

Former IRDAI member Thomas Devasia argues that reducing distributor payouts alone will not address the underlying cost structures in insurance, and that savings could eventually be recovered from customers through higher premiums.

The Insurance Regulatory and Development Authority of India’s (IRDAI) proposal to recalibrate insurance commissions could fail to deliver lasting affordability for policyholders, with premium increases potentially offsetting the savings from lower distributor payouts, Thomas Devasia, Former Member (Non-Life), IRDAI said in an interview with ETBFSI. “The cap on commissions and thereby any reduction in the cost to the customer is a transient advantage which will get pulled back from the broad customer base via premium inflation . We have seen that slowly play out in the context of GST withdrawal in individual life and health insurance contracts,” he said. Advt

Devasia argued that the regulator’s approach risks addressing distribution costs without adequately examining how insurers price products, allocate expenses and compete for business. “The entire set of proposals need a full rethink — open forums and inputs of competent professionals not representing particular interest are the better way forward,” he said. Enforcement, not just commission caps, is the underlying issue Devasia said the present situation reflects gaps in the implementation of existing regulations, including the expense-of-management framework and product-pricing rules. He argued that the regulator should first ensure that existing requirements are followed in substance rather than introducing a sweeping restructuring of distribution economics.

He also questioned whether the proposed expense-of-management (EoM) reductions adequately account for differences between insurers.

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