You paid a higher premium, but the agent benefited:Insurance regulator to change rules, commission cap to be set; more money will be invested

If you are considering buying a new insurance policy, this news concerns your savings. Over the past decade, premiums in the country have continued to rise, but the scope of coverage has not expanded. The reason is that insurance companies have focused more on distributing commissions to brokers than on expanding their business. The insurance regulator is now preparing to change this. Under IRDAI’s new proposal, a maximum limit will be set on brokers’ first-year commissions. This will reduce companies’ expenses and allow more of your premium to be invested, giving you better returns. Management expenses must be reduced to 12.5% within five years At present, insurance companies can incur management expenses of up to 30%. The insurance regulator has proposed reducing this limit in a phased manner. IRDAI believes that the relaxation granted to companies on expenses in 2023 did not benefit customers. Companies continued to raise premiums, but the number of customers did not increase. The country’s GDP grew, but policy growth was zero Over the past 10 years, GDP grew at an average rate of 10%. During the same period, the life insurance business grew by 10% and general insurance by 13%. Despite rising incomes and economic growth, there was no significant increase in the number of people buying insurance. Agents’ commissions increased by up to 125% According to IRDAI, companies were given concessions on expenses in 2023 so that policies would become cheaper and more people would buy insurance. However, premiums continued to rise instead. Companies focused more on paying hefty commissions to distributors than on expanding their business. A large share of the premium will be invested IRDAI says high commissions increase costs for customers. As a result, they either have to pay higher premiums or receive fewer benefits from the insurance product. In view of this, IRDAI has proposed capping commissions based on the premium payment term. Cutting commissions will enable a larger share of policyholders’ premiums to be invested. Commission will be determined by the policy term Half of all policies lapse in the 61st month According to IRDAI data, companies focus only on selling new policies, not on retaining customers. In life insurance, only 48% of policies remain active by the 61st month. This means more than half of policyholders surrender their policies midway.