Insurance policy will be expensive! IRDAI’s new rule will have a big impact, know from experts how customers can reduce t

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The Insurance Regulatory and Development Authority of India (IRDAI), the regulatory body that oversees the operation of insurance products and companies in India, has revised its proposal to cut agent commission. In a fresh proposal on November 24, IRDA plans to allow insurance companies to pay commission as per their board-approved policies. However, there is a rider – insurers have the flexibility to adhere to it as long as the amount paid does not breach the all-in-cost cap.

Author and assistant professor at the National Institute of Securities Markets (NISM), Monica Helan said this is a big step forward in the insurance industry as it puts all the costs under one heading and gives the industry the freedom to allocate as per its preferences. .

New rules may come into effect from 1 April 2023

EOM includes commission and other expenses like technology cost, personnel cost, administrative cost etc. The August draft also gave freedom to fix commission payments to companies that did not breach the EOM limit. Once finalised, these rules will come into force from April 1, 2023.

Heavy commission rates, especially in life insurance policies, often work against the interests of the policyholders. Currently, insurance companies are not required to reduce their commission payments as long as they are within the EOM limit. In other financial sectors like mutual funds where the expense ratio tends to go down.
In his report on the proposed commission structure, Avinash Singh, senior research analyst at MK Global, said, “Both the regulator and the industry need to get over the ostrich syndrome and come to terms with the fact that the overall expense ratio is expected to rise. Increase the size of the industry. It would also be unwise for the insurance industry to look inward.

The increase in the size of the industry has resulted in a significant reduction in costs. Experts say that though policyholders can no longer do anything about paying hefty commissions to agents, they can buy directly from insurance companies to save on premium. “The new draft states that life and non-life policyholders can approach insurance companies directly and get discounts on premiums,” says Hari Radhakrishnan, regional director, First Global Insurance Brokers.

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