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Insurance regulator (IRDAI) made a number of announcements over the past week. Key features: (1) introduction of an overall ‘expense of management’(EOM) limit in life as well as non-life insurance with no sub-limits on commission; (2) introduction of the insurer’s Board policy on commission structure including distribution fees to motor insurance service providers; (3) registration of two new life insurers, namely Acko Life Insurance, and Credit Access Life Insurance; (4) introduction of product management committee (PMC) to review the products submitted under ‘use and file’, which we have
detailed in table-1.

* There is a possibility of higher commissions being charged/given post the new EOM guidelines. If we consider that the permissible bancassurance partner count has been increased from 3 to 9, there is a possibility of higher competitive intensity for commission fees from intermediaries. On the other hand, unlisted insurers who want to gain market share can use this opportunity to grow as much as possible using the levers of higher commissions as well as more partners.

* EOM guidelines will also likely raise the commissions for motor TP, which will now be legitimate.

* EOM guidelines also mention a Board-approved policy for every insurer specifying the manner of transfer of benefits, accruing from reduction of expenses and/or from directly-sourced business, to the policyholders by way of reduction in premium. While the exact contours of this guideline remain to be seen, the construct of passing the benefit of lower cost and/or direct business, is an important principle that can set pricing on a platform like Bima Sugam in the future.

* Yet, the guidance note on Board policy of insurer on commission structure aims to do a key balancing act. The introduction of commission guidelines is somewhat counterintuitive considering the expense limit now being set at the EOM level. However, it puts key responsibilities on the Board of the insurance company on critical issues as mentioned below:

 * Ensuring fairness and reasonableness toward being able to prevent excessive commissions for intermediaries at the expense of customer/insurer.
*  Ensuring there is no mis-selling to maximise commission by intermediaries,through governance and oversight mechanism.

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