Insurance 2.0: After 100% FDI, distribution costs reset

The timing of the proposed rejig of distribution economics by IRDAI (Insurance Regulatory and Development Authority) is interesting as it came six months after India allowed centum foreign ownership in the sector.

IRDAI is re-engineering the financial metrics of distribution — axing expenses of management (EoM) limits, tightening commission and moving towards a more technology-driven distribution architecture as the regulator now feels sector has become “high cost and commission-led”.

Proposing a phased reduction in EoM limits, the IRDAI, in its consultation paper, “Recalibrating Economics of Insurance Distribution,” said that for life insurers, the ceiling will move to 15% of gross direct premium income (GDPI) within two years and 12.5% within five years from the present 30-35% levels.

General insurers would see the benchmark shift from gross written premium to domestic GDPI, with the ceiling trending towards 20% within five years against 32.1%.