Focus on actual payouts, not just claim settlement ratios: IRDAI Chairman

The Insurance Regulatory and Development Authority of India (IRDAI) is confident of curbing mis-selling with the help of proposed reforms. In an interview to businessline, IRDAI Chairman Ajay Seth has said that a better-structured mechanism has been proposed, comprising linking commission payout to persistency and prohibiting the bundling of loan with insurance. He also informed that actual payment and not just claim settlement headline numbers in health insurance is being monitored.

What has been feedback so far on the consultation paper titled ‘Recalibrating Economics of Insurance Distribution’?

The feedback so far has been active and wide-ranging, which is what consultation should generate. We have been meeting insurers, distributors, industry bodies and associations, and comments are open until October 25. It would be premature to draw conclusions from the feedback before the due date. Once it does, every comment will be examined carefully, and suggestions backed by data and sound economic logic. That will serve policyholders, will be given due weight.

Based on this, we will issue draft regulations, which will again be placed for public consultation before final notification. I would also urge policyholders and the public to share their views actively. As a regulator, we hear from regulated entities quite easily. But for these reforms, the views of the public matter even more.

Why is there a need to review the expense of management (EoM) and capping the commission?

What we are doing is a recalibration based on experience and evidence. The 2023 framework gave insurers flexibility, relying on Board-approved commission policies, in the hope that savings would ultimately reach policyholders.

Instead, the flexibility went into distributor payouts. Board approval often became a formality, and rewards added 30-60 per cent on top of base commission. Private life insurers’ total expenses rose from around 16 per cent in FY21 to around 22 per cent now; for private general insurers, from around 25 per cent in FY19 to around 32 per cent.

Meanwhile, premiums have only tracked GDP, not outpaced it, and the number of policies has not grown enough. The lesson is not that flexibility is inherently wrong, but that flexibility without adequate guardrails can produce unintended outcomes. The proposed framework therefore combines discipline with differentiation.

The objective is to move from commission-led distribution to quality and value-led distribution.

The consultation paper is open for comments until October 25. We will consider all feedback and then issue draft regulations, which will again be placed in the public domain for comments before the final regulations are notified.

We are considering two possible dates for implementation: 1 January 2027 or 1 April 2027. The expenses of management limits will follow a phased glide path giving insurers time to restructure their cost base. There is an earlier-the-better approach, but getting the reforms right is more important than speed.

The reforms are designed around one test: does the ordinary policyholder get better value? Lower costs should show up as lower premiums or a more moderate rate of increase, better returns on savings products and stronger claim outcomes. Price and quality are inseparable, so affordability must go with better products and service. Policyholders will also see a fairer buying experience. Product and price information should be available without first surrendering personal details.