Industry Odisha Bureau, Oct 26: Finance companies seek a gradual transition to reduce selling fees, opposing IRDAI’s proposed caps.
Non-banking finance companies (NBFCs) want five years to cut their insurance commissions. They have also asked to pay premiums directly to insurers for borrowers. The requests were made to the Insurance Regulatory and Development Authority of India (IRDAI). They came through the Finance Industry Development Council (FIDC), in an October 24 submission.
At issue are proposed commission caps on credit-linked insurance. IRDAI has proposed a 2% cap for credit life insurance. Credit health insurance would face a 5% cap. Credit life cover generally protects loans against specified borrower risks, such as death. Credit health cover links health protection to a borrowing arrangement. These caps remain proposals, not final rules.
FIDC argues such caps would make distribution unviable. It wants commissions brought down gradually instead. FIDC proposes cutting commissions from current levels of 45–49% to 25%. That reduction would be phased over five years. The council cites a similar glide path given to insurers. Insurers received five years to align their expenses of management, or operating costs.
The 25% figure is the industry’s own target, not an approved ceiling. FIDC also proposes trimming motor insurance commissions over five years. Motor third-party commissions would fall from 10% to 5%. Third-party cover, mandatory by law, pays for damage to others. Own-damage commissions, covering the policyholder’s vehicle, would drop from 15% to 10%.
Cost is the industry’s central argument. FIDC’s activity-based model puts distribution expenses at about 32% of the premium. These include customer acquisition, branches, technology, compliance and policy servicing. They also include credit risk from financing premiums. The council estimates credit losses of 3% on unsecured premium loans. Losses on secured premium loans are put at 1–1.5%. These are lending losses, separate from insurers’ underwriting claims. All these figures are industry estimates, and costs vary across lenders.
FIDC has warned of wider consequences. It said lenders might downsize or exit insurance distribution if caps squeeze margins. Jobs in those teams could be affected, the council cautioned. These remain warnings, not confirmed developments.
Point-of-Sale Persons (PoSPs), small agents earning micro-commissions, could also feel the impact. More than 1.4 million PoSPs rely on such payouts, according to FIDC. It estimates per-transaction earnings could fall by around 90%. Its example: a two-wheeler package policy payout dropping from ₹1,000 to ₹100. Actual effects would differ by product and distributor.
The council also links commissions to insurance penetration. NBFC branches often reach borrowers in rural and semi-urban areas. Fewer corporate agents, FIDC argues, could mean less borrower counselling and lower coverage.
The regulator must weigh these concerns against consumer interests. Commission limits are often aimed at affordability and transparent selling. Higher payouts do not automatically improve outcomes for policyholders. Feedback on the proposals is due by October 31, the report indicates. IRDAI has not yet announced a final decision.
