Context:
A report has highlighted that aggressive competition through intermediaries such as agents, brokers, bancassurance partners and OEM channels is affecting the profitability of general insurers. It also reflects IRDAI’s concern over rising commissions and weakening underwriting discipline in the insurance sector.
- General insurance covers non-life risks such as health, motor, fire, marine, travel and property insurance.
- Insurance companies collect premium from policyholders and pay claims when insured risks occur.
- Underwriting means assessing risk before issuing an insurance policy and deciding the premium.
- If insurers focus only on growth and ignore risk-based pricing, it weakens underwriting discipline.
- Intermediaries are distribution channels that sell insurance products on behalf of insurers.
- They include agents, brokers, bancassurance partners, OEMs, web aggregators and corporate agents.
- Bancassurance means selling insurance through banks.
- OEM channels are common in motor insurance, where insurance is sold through vehicle manufacturers or dealers.
- High dependence on intermediaries can increase commission costs for insurers.
- When commission-led growth becomes excessive, premium growth may rise but profitability may fall.
- IRDAI regulates the insurance sector and has introduced the Expense of Management framework to control operational and commission-related expenses.
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