RBI to share views on Irdai's proposed insurance distribution overhaul

MUMBAI: The Reserve Bank of India (RBI) is reviewing the impact of proposed insurance-distribution reforms on banks and non-banking financial companies (NBFCs), with governor Sanjay Malhotra saying the central bank will share its views with the insurance regulator.

The comments come as the Insurance Regulatory and Development Authority of India (Irdai) considers sweeping changes to the economics and architecture of insurance distribution, including tighter limits on insurers' expenses of management (EoM), a return to product-level commission caps and a simplified distribution framework.

Asked whether the RBI and Irdai would coordinate on the proposed changes, Malhotra said the matter primarily falls within the insurance regulator's remit.

"This is in the realm of the insurance regulator to decide as to what and how they want to do the distribution of insurance products. We will give our comments," he said at a post-policy press conference. "We have not formed our view on this. We will give our comments to them."

The proposals could materially affect banks and NBFCs, for which insurance has become an important source of fee income, particularly through credit-linked products. As previously reported by Mint, the proposed commission framework could sharply reduce payouts on products such as credit-life insurance, while a proposed ban on compulsory bundling could also affect insurance attachment rates on loans.

"We have not formed a view," Malhotra said. "I suppose, you know, the regulator obviously has, first of all, it's a draft, so they will take comments from all stakeholders, including the industry."

He also outlined what he saw as the regulator's stated rationale for the proposals. "It is primarily, I think, you know, in consumer interest to reduce costs and also at the same time to prevent or reduce mis-selling."

He added that Irdai would take a decision "in the best interest of consumers and the industry."

The Irdai consultation paper, released on 23 September, proposes a five-year glide path to lower EoM limits. Life insurers would be required to bring EoM to 15% of premium within two years and 12.5% within five years. For general insurers, the corresponding targets are 25% and 20%. The paper also proposes first-year commission limits for distribution entities ranging from 5% to 20%, depending on the product.

The consultation is open for stakeholder feedback until 25 October.