Aggressive intermediary-led competition hurting general insurers’ profitability: report

Aggressive intermediary-led competition is hurting profitability across the general insurance sector, said consulting firm Praxis Global Alliance in a report reiterating insurance regulator IRDAI’s growing concerns over rising commissions and weakening underwriting discipline by general insurance companies.

The report comes days after IRDAI Chairman Ajay Seth flagged the sector’s “structurally high-cost” nature and warned against excessive dependence on intermediary-driven distribution models.

According to the report, almost 80% of insurance business in India remains intermediary-led through agents, brokers, bancassurance partnerships and OEM channels, resulting in intense competition for distributor mindshare.

“Honestly, a lot of growth today is just being bought through commissions,” the report quoted a senior insurance executive as saying.

The report noted that commission growth has outpaced premium growth across private insurers, PSU insurers and standalone health insurers after the revised Expense of Management (EOM) framework came into effect in 2023.

The revised norms shifted insurance from product-level expense caps to portfolio-level flexibility, giving insurers greater freedom in managing commissions and operating expenses. However, Praxis said the framework may also have intensified competition in retail insurance categories such as motor and health insurance.

Industry executives cited in the report said insurers are increasingly writing low-cost group and crop insurance business to create “expense headroom”, which is then used to fund higher commissions in retail products.

“What’s happening is people are writing a lot of group or crop business — not because it’s attractive, but because it helps them manage EOM… and then that flexibility is used somewhere else,” the report quoted a senior strategy executive at a general insurer as saying.

The report said combined ratios across Indian insurers continue to remain above 100%, indicating persistent underwriting losses.

According to the report, underwriting losses stand at almost 13% of net written premium, while investment income contributes about 21%, highlighting the sector’s continued dependence on treasury income for profitability.

The report also stated that insurers continue to have weak ownership of customer relationships, with intermediaries largely controlling acquisition, renewals and engagement. This has created what Praxis described as “reacquisition-led growth”, where insurers repeatedly incur acquisition-like costs even during renewals.

“Indian general insurance has achieved strong scale, but underwriting profitability still remains well below global benchmarks,” Madhur Singhal, Managing Partner, Praxis Global Alliance, said.

“The next phase of value creation will likely come from stronger underwriting discipline, customer ownership and retention-led growth,” he added.

Vishal Bhave, Practice Leader, Insurance, Praxis Global Alliance, said regulatory developments around commission transparency, Bima Sugam, Ind AS 117 and risk-based capital frameworks could gradually push the industry towards more sustainable profitability and healthier customer economics.