Irdai slams hefty broker expenses, warns of reforms

The Insurance Regulatory and Development Authority of India (Irdai) Chairman, Ajay Seth, has raised concerns regarding the substantial distribution costs associated with brokers and other insurance intermediaries. Seth pointed out that some of these entities exhibit expense structures that are on par with, or even surpass, those of insurance companies.

Speaking at an industry event, Seth revealed that the regulator has received information indicating that expenses for some large brokers can account for 30% or more of their earned premium. He questioned the viability of such high cost models, stating, "If 30% is the cost of the broker, who will do the business there after?"

These remarks precede Irdai's anticipated release of consultation papers on massive distribution reforms and enhanced disclosure norms for intermediaries earning over ₹10 crore in commission annually. The proposed reforms are expected before the end of July.

Seth also addressed the role of Point of Sales Persons (PoSPs), emphasizing that this model should not inflate distribution costs. He urged greater transparency from brokers regarding product details, pricing, insurer and broker performance, risk placement, and associated challenges, enabling policyholders to make informed decisions.

Furthermore, Seth cautioned brokers against demanding consistent pricing across all distribution channels from insurers, deeming it inappropriate and detrimental to policyholder trust. He also advised fairness to insurers, especially in corporate insurance, by avoiding pricing pressure and providing complete risk information for better underwriting.