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Life Insurers Face Rising Commission Costs in FY25
5 Feb
Summary
- Private life insurers' commission expense ratio climbed to 8.94% in FY25.
- Total commissions on ULIPs and traditional products increased by 18%.
- Life insurance penetration declined to 2.7% in FY25.
The commission expense ratio within the life insurance industry escalated to 6.86% in FY25, primarily driven by an increase among private sector insurers. Private life insurers reported a higher commission expense ratio of 8.94% for FY25, up from 7.22% in FY24. In contrast, the state-owned Life Insurance Corporation of India (LIC) saw its ratio decrease to 5.18% from 5.46% during the same period.
These shifts occurred as the industry adjusted its distribution payouts following revisions to surrender value norms. Companies implemented strategies like reducing commissions, deferring bonuses, or offering enhanced persistency bonuses to manage their profit margins. Despite these adjustments, total commissions paid on unit-linked and traditional insurance plans rose by 18% year-on-year to Rs 60,799.91 crore in FY25.
Private insurers' share of these commissions grew by 38.8% to Rs 35,491.15 crore, while LIC's commissions declined by 2.5% to Rs 25,308.76 crore. Although total life insurance premiums increased by 6.73% to Rs 8.85 trillion in FY25, life insurance penetration in India dipped to 2.7% from 2.8% in FY24.
