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The industry body of NBFCs has told the Insurance Regulatory and Development Authority of India (IRDAI) that the proposed commission caps of 2% for credit life and 5% for credit health insurance would make credit-linked insurance distribution unviable, given distribution costs are about 32% of the premium. NBFCs have proposed a phased reduction in commissions from the current 45-49% to 25% over five years, warning steep cuts could force lenders to exit the insurance distribution business. Also Read: Insurance commission: IRDAI extends time for feedback to October 31 In its October 24 submission to IRDAI, the Finance Industry Development Council (FIDC) said the proposed caps risk undermining the distribution infrastructure needed to expand insurance penetration, particularly in rural and semi-urban areas. "Just like the manufacturers have been provided with a 5-year glide path for expense of management alignment, NBFCs distributors should also be provided with a similar path on attenuation of commission structures over a 5-year period," said FIDC in a letter to IRDAI adding NBFCs would voluntarily bring down the commission structures from the current high 40s to an acceptable 25% over a period of 5 years. FIDC said that the proposed commission structure overlooks the customer acquisition, technology, compliance and servicing costs borne by lenders. Its activity-based cost model estimates that distribution expenses amount to about 32% of the premium, including customer acquisition, branch infrastructure and credit risk associated with financing premiums. Also Read: Banks seek relief from sustainable lending norms for FCNR(B) loans NBFCs say that the current commission payout proposals for distributors lead to a significant margin compression, grossly failing to defray the marginal insurance distribution costs. "This will lead to a viability conundrum for NBFCs, and they might be constrained to exercise their economic choice to downsize or exit their insurance distribution vertical, resulting in possible separations of salaried employees servicing the insurance distribution and servicing channel," the industry body told IRDAI. Since over 1.4 million Point-of-Sale Persons (PoSPs) rely on micro-commissions, the proposed caps will slash their per-transaction earnings by around 90% and cited that standard two-wheeler package policy payout would collapse from ?1,000 to ?100, making micro-entrepreneurship unviable. Also, lower commission payout will lead to exit of NBFCs to be a corporate agent leading to lower incidence of counselling of borrowers and in-turn lower penetration of insurance. (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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