IRDAI's new 5-year roadmap to impact insurance companies; policyholders set to benefit..

Insurance regulator IRDAI has proposed a new five-year roadmap to reduce distribution and other management expenses for insurance companies. This move has caused a stir in the financial services sector, as the regulator aims to curb excessive distributor payouts and lower costs for policyholders. Many insurance companies could be impacted by this.

**Key IRDAI Proposals and Changes**

**Stricter Limits on Expenses of Management (EoM)**

It is proposed to reduce the Expenses of Management (EoM) limit for life insurance companies to 15% over the next two years and to 12.5% ​​within five years. For general insurance companies, the proposal is to reduce this limit—based on Gross Direct Premium Income (GDPI)—to 25% in two years and to 20% in five years.

**Significant Cuts in Commissions**

There is a proposal to cap first-year commissions for pure-term life insurance at 25% for open distribution entities (banks, brokers, aggregators) and at 30% for agents. Significant cuts in commissions for health and motor insurance have also been proposed.

**Brokerage Views and Market Impact**

Global brokerage houses such as Jefferies, Macquarie, Bernstein, and HSBC believe that these proposals could deal a major blow to distributor companies—particularly PB Fintech (Policybazaar)—in the near future. In contrast, companies like SBI Life and LIC are considered safe amidst this shift, as their existing Expense of Management (EoM) ratios are already close to or below the proposed 10–12.5% ​​range.

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