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RBI Flags High Insurance Commissions: Risk to Affordability
1 Jan
Summary
- RBI identifies rising insurance commissions as a significant risk factor.
- Higher commissions increase product pricing, impacting affordability and penetration.
- Policymakers are aligned on curbing excessive commissions for wider coverage.
The Reserve Bank of India (RBI) has raised concerns about escalating insurance commission costs, identifying them as a significant risk within the financial stability report. These elevated distribution expenses are being embedded into product pricing, negatively affecting both the affordability of insurance and its penetration across the population.
The central bank's observations align with previous warnings from the Insurance Regulatory and Development Authority of India (IRDAI) and the finance ministry's Department of Financial Services. These bodies have also highlighted excessive commissions as a barrier to achieving broader insurance coverage, signaling a consensus among policymakers.
Specifically, the RBI noted a substantial increase in commission payouts for both private life and non-life insurers, with a sharp acceleration observed in the private life insurance segment since FY23. This trend poses a challenge to the 'Insurance for All by 2047' objective.
