IBAI seeks extension of IRDAI consultation deadline till December

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The Insurance Brokers Association of India (IBAI), during a press conference on October 6, told the media that it has sought an extension of the deadline for submitting industry feedback on the regulator's proposed overhaul of insurance distribution.

The association, which represents more than 800 members, said it is holding discussions with members and the regulator and has sought time until the end of December to submit its response.

The brokers' industry believes the consultation involves a “paradigm” shift in the distribution architecture and therefore warrants a more detailed examination before the proposed framework is finalised.

While backing the regulator’s stated objective of improving efficiency, reducing mis-selling and ensuring better value for policyholders, the association said the proposed framework needs greater deliberation and a closer examination of its impact on the distribution ecosystem.

‘India needs more insurance, not merely cheaper distribution’

According to a board member of IBAI, speaking to the press, the ecosystem includes around 83 lakh people involved in distribution, including agents, point-of-sale persons, brokers and other professionals.

A significant portion of this workforce operates outside large cities and helps take insurance products to smaller towns and underserved communities. The association argued that weakening the economic viability of this network could have consequences beyond employment, including lower insurance awareness, fewer policies reaching underserved customers, weaker renewal servicing and reduced assistance when claims arise.

"India needs more insurance, not merely cheaper distribution," was the broad message from the association. It said the objective of reform should ultimately be measured by whether the policyholder is better protected as a result of the changes.

The association urged the government, IRDAI, insurers and other stakeholders to examine the data jointly, including what customers pay, what they receive in return, claims outcomes, grievances, choice and competition.

Job losses emerge as major concern

Industry representatives said some brokerages could see revenue declines of 60-70 percent under the proposed changes, with smaller-ticket customers particularly vulnerable to being dropped because the economics of servicing them could become unattractive.

The concern is that distributors would increasingly focus on larger-value policies, while products with lower premiums such as certain home and other retail insurance products could become commercially difficult to sell and service.

The association cited a potential impact running into lakhs of jobs across distribution, with one estimate discussed during the interaction putting potential distribution job losses at around 10 lakh.

Individual brokers also indicated that their own businesses could face substantial revenue declines if the proposed commission and distribution changes are implemented in their current form.

The industry said the impact could extend beyond intermediaries to insurers as well, as insurers could also face pressure to reduce their own distribution and sales workforce if the overall economics of distribution change sharply.

When asked whether insurance distribution reforms could follow the mutual fund industry’s model of lower commissions and costs, IBAI representatives said the two sectors cannot be directly compared because insurance involves significantly greater servicing requirements.

Unlike mutual fund investments, insurance products require ongoing assistance around policy servicing, renewals and, most importantly, claims, making the economics of distribution different, they argued.

The association therefore cautioned against applying reforms or commission structures from the mutual fund industry directly to insurance without considering these differences.

Brokers question sharp rise in reported commissions

Representatives of the broking industry argued that the apparent rise in commissions after the 2023 reforms needs to be examined in the context of changes in accounting and classification of expenses.

According to the industry, some payments that were previously classified as marketing expenses were brought into the commission framework after the regulatory changes.

The brokers said this does not necessarily mean that the underlying cost of distribution suddenly increased to the same extent as suggested by the headline numbers.

They also pointed out that the overall management expense ratio for the general insurance industry remains below the regulatory ceiling.

The argument from the industry is that the focus should therefore be on identifying specific areas where remuneration or distribution costs are disproportionate to the value and service delivered to customers, rather than redesigning the entire distribution architecture.

"There are areas where industry commission is high," the representatives acknowledged, adding that the regulator has the power to address such cases. However, they questioned whether this required a complete change in the architecture of insurance distribution.

Industry says 2023 reforms already addressed ‘shadow’ payments

The association also defended the 2023 move to replace segment-wise commission structures with overall expense limits, arguing that the reform had already addressed a key problem: payments being routed through marketing and other expense heads.

According to the industry, payments that were earlier made outside the formal commission structure were brought above board following the reforms.

The brokers argued that artificially capping commissions while allowing insurance premiums to remain market-driven can create distortions. In a competitive, non-tariff market, they said, insurers and intermediaries can find ways to compete for business if the regulatory framework places a rigid ceiling on one component of the economics.

The industry’s preferred approach is therefore to identify where the problem actually exists, particularly in cases where customers do not exercise free choice, and intervene specifically in those segments.

Focus intervention on 'forced distribution'

One of the arguments made by the association during the press conference was that the regulator should distinguish between distribution where customers actively choose an intermediary and situations where distribution is effectively driven by the lender or another institution.

The industry drew a distinction between a customer voluntarily choosing a broker or agent after comparing price, coverage and service, and cases where insurance distribution is effectively tied to another financial transaction.

The brokers argued that regulatory intervention should be concentrated on the latter category.

One suggestion put forward was to use claims ratios as a mechanism to ensure that excessive economics in forced-distribution channels ultimately benefit policyholders rather than simply shifting money from distributors to insurers.

The association argued that reducing commissions in such segments could otherwise merely transfer the economics to insurers without guaranteeing that customers receive the benefit through lower premiums or better coverage.

Claims servicing at centre of industry argument

Claims have emerged as a key part of the industry’s argument against weakening the intermediary ecosystem.

The association said the value of an intermediary is not limited to selling an insurance policy. Brokers and agents also assist customers during renewals, service requests and, critically, claims.

The industry argued that reducing the number of distributors may not immediately reduce the service provided by an individual intermediary, but could have a broader impact if fewer intermediaries remain in the market.

This, it said, could ultimately affect insurance penetration and policyholder support, particularly outside large urban centres.

The association also cited examples from motor insurance to argue that intermediaries can contribute to higher retention and customer servicing. One broker said its annual retention rate in certain motor insurance business was around 75%, while the industry claimed that insurers themselves typically record substantially lower retention in comparable business.