Insurance Stocks React to IRDAI Push for Higher Policy Persistency

Shares of insurance companies and insurance-linked firms fell sharply on Thursday, declining between 10 per cent and 20 per cent, after the Insurance Regulatory and Development Authority of India (IRDAI) proposed new caps on commissions for individual life insurance policies.

The proposed distribution reforms are aimed at reducing upfront sales incentives and encouraging policyholders to continue with multi-year premium payment plans.

In a consultation paper, IRDAI said the commission structure for life insurance products should encourage distributors to nudge policyholders towards maintaining their multi-year payment commitments rather than focusing primarily on securing the first-year premium.

Under the proposed framework, maximum commission limits for individual linked and non-linked life insurance policies would vary according to the premium payment term (PPT).

For policies with a PPT of less than five years, commissions would be capped at 5 per cent for distribution entities and 6.25 per cent for individual agents. For five-year payment terms, the proposed limits would rise to 10 per cent and 12.5 per cent, respectively.

For PPTs of six to eight years, the proposed commission caps would be 14 per cent for distribution entities and 17.5 per cent for agents. These would increase to 18 per cent and 22.5 per cent for nine-year payment terms.

For policies with payment terms of 10 years or more, commissions could be capped at 20 per cent for distribution entities and 25 per cent for agents.

The regulator has also proposed lower commission limits for single-premium products and certain products offering tax incentives.

For individual savings policies with a single premium, first-year commissions would be capped at 1 per cent for distribution entities and 2 per cent for agents. Single-premium pure term policies would have proposed caps of 7.5 per cent and 10 per cent, respectively.

The consultation paper said the proposed commission structure should be comprehensive and cover incentives, awards, reimbursement of selling expenses and non-cash benefits.

Under the proposed framework, first-year commission for a single-premium term policy could be up to 7.5 per cent for distribution entities and 10 per cent for agents. For multi-year premium term policies, the corresponding limits could be as high as 25 per cent and 30 per cent.

The proposed changes are part of IRDAI’s broader effort to align insurance distribution incentives with policyholder persistency and the longer-term continuation of insurance coverage.