Commission Limits Lifted: IRDAI Commission Regulations And EOM Life And Non-Life Regulations

Published date24 April 2023
Subject MatterInsurance, Insurance Laws and Products
Law FirmTuli & Co
AuthorMs Celia Jenkins, Anuj Bahukhandi and Rohan Bangia

Introduction

Commission payments to insurance agents and insurance intermediaries for distribution and servicing of insurance policies, as well as the overall expenditure of an Insurer vis-à-vis the premium earned by it in any particular financial year, has been historically subject to stringent limits in terms of the manner and timing of such payments/expenditure.

For several years now, various representations have been made to the regulator to consider some relaxations on the expenses of management ("EOM") that may be incurred by Insurers and to remove the strict payment caps for commission payments. Following the more recent discussions and representations, on 23 November 2022, the IRDAI issued exposure drafts re (i) payment of commissions to insurance agents/insurance intermediaries; (ii) expenses of management of Insurers transacting life and non-life insurance business.

Thereafter, following comments received from various stakeholders on these exposure drafts, the IRDAI has recently notified the: (i) IRDAI (Payment of Commission) Regulations 2023 on 27 March 2023 ("Commission Regulations"); (ii) IRDAI (Expenses of Management of Insurers Transacting Life Insurance Business) Regulations 2023 on 28 March 2023 ("EOM Life Regulations"); and (iii) IRDAI (Expenses of Management of Insurers Transacting General & health Insurance Business) Regulations 2023 on 28 March 2023 ("EOM Non-Life Regulations").

These final regulations are broadly in similar terms to their respective exposure drafts. The regulations have come into force from 1 April 2023, and each expressly sets out that the regulations will be reviewed once every three years from the date of their notification.

A brief summary of the key provisions under these regulations are as follows:

  1. As a departure from terminologies previously applicable, the Commission Regulations now subsume remuneration and rewards within the ambit of "commission". The term is now defined to mean "any compensation including remuneration, or reward, by whatever name called, paid by an Insurer to insurance agent, Intermediary or Insurance Intermediary as applicable, for soliciting or procuring or transacting insurance business".
  2. The Commission Regulations do away with the limits prescribed earlier on the maximum commission payable to insurance agents/intermediaries for each category of insurance products to now stipulate that the total amount of commission payable to an insurance agent/intermediary should not exceed the EOM...

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