Insurance mis-selling is arising because upfront commissions are too high: IRDAI chairman Ajay Seth
IRDAI chairman Ajay Seth stated that high upfront commissions contribute to mis-selling in the insurance sector. He urged insurers to pass on savings from reduced commissions and operational costs to policyholders through lower premiums, improved returns, or better claims payouts. The regulator's proposed tighter limits on commissions and expenses are designed to boost affordability, curb mis-selling (selling a product that doesn't meet a customer's needs, often due to high commissions), and reduce the practice of compulsory bundling.
What this means
New IRDAI guidelines, aimed at improving product affordability and curbing mis-selling, will directly impact the revenue models of insurance companies, including those owned by banks. The focus on cost efficiency and lower commissions could compress margins for distributors, including bank bancassurance channels, and require a re-evaluation of sales incentives and product pricing strategies. Smaller insurers, as noted in other reports, might find it harder to adapt.
Most affected: Bancassurance, Insurance Companies
Key takeaway: Review current bancassurance commission structures and explore strategies to enhance cost efficiency and customer value proposition in light of IRDAI's regulatory push.
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