Stories
IRDAI Reforms: Existing Insurance Plans Face Major Overhaul, Says Nilesh Sathe
- •IRDAI's proposed distribution reforms could force insurance companies to modify and realign all existing plans, according to former IRDAI member Nilesh Sathe.
- •Sathe noted that current insurance products are designed around existing distribution structures, meaning changes to distribution costs and commissions will necessitate product and pricing revisions.
- •Insurers may need to withdraw and relaunch numerous products at lower costs, posing a significant challenge given the large number of products each company offers.
- •Sathe welcomed the changes from a policyholder perspective, believing lower manufacturing and distribution costs will reduce mis-selling and make insurance more affordable, potentially increasing penetration.
- •While individual agents may see less impact, bancassurance and brokers could face short-term pressure on fee-based income, with digital distribution like Bima Sugam gaining importance.
Key Questions Answered
According to former IRDAI member Nilesh Sathe, if the proposed distribution reforms and framework changes are implemented, insurance companies will likely need to modify and realign all their existing plans to match the new guidelines. Insurers may also need to withdraw and relaunch products at lower costs.
The IRDAI proposed reintroducing hard commission caps because the sector has become increasingly commission-led, with distributor payouts and average commissions rising sharply following the removal of caps in 2023. The regulator noted that high distribution costs are hurting policyholders, raising premiums, and reducing overall value.
While individual agents are not expected to be substantially affected because their commissions are tied to sales effort, bancassurance and brokers are expected to face greater short-term pressure on fee-based income. Low-touch channels like bancassurance may also face tighter structures due to lower distribution effort.
