India's insurance regulator's proposed insurance distribution reforms will accelerate companies' scaling up of their agency channels whilst introducing steep caps for general and health insurance, according to Nomura's Global Markets Research team.
Certain products like individual pure term agents have been given a similar or better commission structure, and this will likely accelerate life insurers’ expansion of their agent network, according to a recent report.
“We note that all our covered life insurers have been planning to scale up [their] agency channels, which will only get accelerated now,” said Nomura India Financials research analysts Shreya Shivani, Yashraj Molawade, Ankit Bihani, and Shreyas Pimple.
The proposed reforms introduce two key changes, according to Nomura, with the expense of management caps made more stringent. It also re-introduces commission caps across products, channels, and geographies.
“We feel the commission caps proposed in general and health insurance are quite steep vs life insurance,” the analysts said.
Health insurance commission caps proposed are stricter than current payouts, whilst new vehicle third-party insurance commissions are now zero instead of the 2.5% cap earlier.
“While this can help insurers achieve the EOM caps, we worry about the motivation of health insurance distributors,” Nomura wrote.
Most private general insurers have been paying large commissions to gain market share with vehicle dealers, and the zero commission may drag their market share expansion, the analysts said.
Amongst the insurers, SBI Life stands as best placed, as its current EOM ratio is most comfortable amongst the insurers covered by Nomura, the analysts said.