Insurers Seek Phased EoM Transitions and Mis-selling Adjudication

01

Regulatory Feedback and the Push for Gradual Reform

The Indian insurance sector is currently engaged in a high-stakes dialogue with the Insurance Regulatory and Development Authority of India (IRDAI) regarding proposed changes to Expense of Management (EoM) limits and sales conduct oversight. Stakeholders have submitted over 650 comments, signaling a collective effort to refine the regulatory roadmap.

At the core of this feedback is a request for a more gradual transition to tighter expense caps. Insurers argue that immediate cuts could destabilise operations, especially as firms are simultaneously investing heavily in digital infrastructure and compliance frameworks to meet evolving standards.

02

The Challenge of Expense of Management (EoM) Cuts

The proposed reduction in EoM limits aims to enhance policyholder value by lowering the cost of insurance. However, for insurers, this represents a significant challenge to existing margin structures. The industry has highlighted that the cost of doing business is not static; rising overheads in technology and regulatory reporting require adequate financial headroom.

A sudden compression of these limits could impact the ability of insurers to maintain service standards or invest in the necessary tools for field force productivity. By seeking more time, insurers hope to recalibrate their cost structures without compromising growth or operational integrity.

A phased approach to expense limits allows insurers to align their long-term technology investments with new regulatory ceilings.

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03

Demanding Due Process for Mis-selling Allegations

Beyond financial limits, the industry is focused on the reputational and operational impact of mis-selling flags. Currently, the recording of such flags against distributors can have immediate consequences. Insurers are now pressing for a formal adjudication process to be established.

This request suggests a need for a 'right to be heard' before a complaint is officially logged as a regulatory mark against a distributor. Such a process would involve verifying the validity of claims, ensuring that distributors are not unfairly penalised for administrative errors or malicious complaints that lack merit.

04

Impact on Distribution and Incentive Structures

The combination of tighter expense limits and stricter mis-selling oversight will likely force a redesign of incentive structures for agents and partners. If EoM cuts are implemented, the pool for commissions and marketing support may shrink, requiring a more performance-linked approach.

Furthermore, the demand for an adjudication process reflects the industry's concern over distributor retention. In a competitive market, ensuring a fair environment for sales teams is critical to maintaining a robust field force. Lenders and insurers will likely need to enhance their internal audit trails to support their case during any adjudication.

05

Technology as a Compliance Catalyst

The industry's mention of rising technology costs highlights the shift toward digital-first insurance. To comply with tighter EoM limits while maintaining growth, insurers are increasingly turning to automation to reduce the cost per policy. This includes digitising the onboarding process and automating compliance checks.

The push for due process in mis-selling also implies a need for better documentation. Digital footprints of every customer interaction—from the first lead touchpoint to the final policy issuance—will become essential evidence if an adjudication process is formalised.

06

What this means for execution

For CXOs and distribution heads, the focus must shift toward operational efficiency and verifiable sales conduct. If IRDAI grants a phased transition, firms should use that window to aggressively automate manual workflows and reduce the cost of acquisition. The demand for due process suggests that insurers must be prepared to defend their sales practices with granular data.

Lenders and insurers can leverage platforms like Toolyt to create transparent, compliance-ready workflows that track field force activities in real-time. By ensuring every stage of the sales journey is documented, firms can better manage EoM constraints through productivity gains and provide the necessary evidence for mis-selling adjudication.