Stories
IRDAI Chief Urges Insurers to Slash Costs, Flags Alarming 44% Distributor Profit Margin
- •IRDAI Chairman Ajay Sheth called on insurers to restore past efficiency levels to enhance policyholder value, citing a sharp increase in costs and commission rates.
- •The cost of doing business in life insurance surged to 22% from 16.5% in FY21, with the regulator aiming for a return to the 15% level seen five to six years ago.
- •General insurance costs also rose significantly, from around 26% (FY17-FY19) to 32%, prompting Sheth to urge the industry to regain lost efficiency.
- •Regulatory scrutiny highlighted high distribution margins, with one large distributor recording a 44% post-tax profit on commission topline and others seeing commission rates jump from 6-8% to 24-38%.
- •Sheth expressed concerns about the economic rationale for the Managing General Agent (MGA) model in the domestic market, emphasizing the need for higher standards in market conduct, corporate governance, and transparency.
Key Questions Answered
The cost of doing business in the life insurance sector has climbed back to 22%, up from 16.5% in FY21, while general insurance costs have reached 32% after previously hovering around 26% between FY17 and FY19. IRDAI wants the industry to return to efficiency levels of around 15% for life insurance seen five to six years ago.
IRDAI Chairman Ajay Sheth flagged that a large distributor currently records a post-tax profit of 44% on its commission topline, while other large distributors saw their commission rates surge significantly over the past three years from 8% to 24% and 6-7% to 38% respectively. He noted that these rising costs and commission rates are misaligned with policyholder interests.
IRDAI Chairman Ajay Sheth stated that the Managing General Agent provision is primarily designed for foreign insurers wanting a presence in the GIFT IFSC. He sees no economic rationale for the MGA concept in the domestic market, emphasizing that market conduct, corporate governance, and transparency must reach a much higher order first.
