IRDAI Reforms Must Prioritize Policyholders, Says N Rangachary
N Rangachary emphasizes the need for reforms in India's insurance sector to focus on policyholders rather than reducing commissions.
IRDAI's proposal to cut intermediary commissions may hinder insurance penetration.
Rangachary argues that reforms should enhance distribution capacity and public awareness.
The regulator must balance regulation and development to ensure effective insurance access.
As the Insurance Regulatory and Development Authority of India (IRDAI) approaches its 26th anniversary on October 23, discussions around proposed reforms are intensifying. N Rangachary, the first chairman of IRDAI, has voiced concerns regarding the regulator's recent suggestion to lower commissions for insurance agents and brokers. He warns that such measures could negatively impact the already low insurance penetration in India, which stands at less than five percent.
Rangachary's insights come in the wake of regulatory changes implemented in 2023, which abolished product-specific commission caps and introduced an overall limit on management expenses. Despite these changes, the growth in policyholders and premium collections has not matched the increased payouts to intermediaries. Rangachary believes that reducing commissions may be suitable for developed markets but could be detrimental to India's insurance landscape, which requires more robust distribution and professional guidance.
The former chairman stresses that instead of cutting commissions, the IRDAI should investigate instances of excessive payouts to intermediaries. He argues that the focus should be on enhancing the quality of services available to policyholders rather than merely reducing costs. Rangachary points out that the insurance sector's long-term nature necessitates a careful approach to financial management, ensuring that insurers remain solvent and capable of honoring claims.
Rangachary also highlights the need for a balanced regulatory framework that does not stifle market competition. He asserts that insurers should retain the autonomy to make business decisions while adhering to prudent regulatory standards. The ultimate goal, he argues, should be to improve policyholder experiences, ensuring they receive clear information about their policies and reliable support during claims processes.
Looking ahead, Rangachary calls for a gradual and evidence-based approach to reform. He urges the IRDAI to conduct independent assessments of the potential impacts of proposed changes, emphasizing that the primary focus should be on enhancing policyholder welfare. The success of regulatory efforts should be measured not by the reduction of commissions but by the increased number of individuals gaining meaningful insurance coverage and the efficiency of claims settlements.
