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Praxis warns IRDAI that post EOM rule changes, commission driven competition is eroding underwriting discipline, keeping combined ratios above 100.
80% Intermediary Dependence Leaves Insurers Chasing Growth Through Commissions: Praxis
India’s insurance regulator is growing increasingly concerned that aggressive commission-driven competition may be weakening underwriting discipline in the general insurance sector.
The concern becomes more significant as nearly 80 percent of insurance business in India is still generated through intermediaries such as agents, brokers, bancassurance partners and OEM channels, according to a report by consulting firm Praxis Global Alliance.
The issue gained attention after IRDAI Chairman Ajay Seth recently flagged the sector’s structurally high-cost nature and excessive dependence on intermediary-led distribution instead of digital transformation.
Revised EOM Rules Fuel Aggressive Competition
The report noted that commission growth has outpaced premium growth across private insurers, PSU insurers and standalone health insurers since the revised Expense of Management (EOM) framework was introduced in 2023.
The revised rules shifted from product-level expense caps to portfolio-level flexibility, allowing insurers more freedom in managing commissions and operating expenses.
While the framework was intended to improve operational flexibility, Praxis said it may also have intensified aggressive competition in retail insurance categories such as motor and health insurance.
Industry executives cited in the report said insurers are increasingly using low-cost group and crop insurance businesses to create “expense headroom”, which is later deployed to pay higher commissions in retail segments.
Underwriting Losses Continue Despite Industry Growth
The report highlighted that combined ratios across Indian insurers remain above 100 percent, signalling continued underwriting losses.
According to Praxis, underwriting losses currently stand at nearly 13 percent of net written premium (NWP), while investment income contributes roughly 21 percent of NWP.
This means insurers are still heavily dependent on treasury gains and investment income to remain profitable rather than generating sustainable underwriting profits.
The report warned that commission-heavy competition is weakening pricing discipline and delaying recognition of loss-making business segments.
Customer Ownership Still Controlled by Intermediaries
Praxis argued that one of the biggest structural challenges for insurers is the lack of direct customer ownership.
Intermediaries continue to dominate customer acquisition, renewals and engagement, forcing insurers to repeatedly incur acquisition-like costs even during policy renewals.
The report described the trend as “reacquisition-led growth”, where customers often remain loyal to intermediaries instead of insurance brands.
Can Direct-to-Consumer Models Reduce Costs?
The report suggested that stronger direct-to-consumer (D2C) models could improve profitability over time by reducing dependence on commissions and improving customer retention.
Global insurers such as Progressive, GEICO and Allstate have successfully built profitable underwriting businesses through direct customer engagement.
Praxis noted that Progressive increased the share of policies sourced through direct channels from 31 percent in 2000 to 59 percent by 2025, alongside a significant improvement in underwriting performance.
The report also cited consumer surveys showing Indian customers are increasingly willing to buy insurance directly if insurers provide transparent pricing, simpler products, smoother claims processing and stronger digital servicing.
However, Praxis cautioned that India’s insurance sector may not shift away from intermediaries quickly, given the complexity of products and customers’ continued dependence on advisors for claims support and policy selection.
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