IBAI Warns IRDAI Reforms Could Trigger Macroeconomic Shock
The Insurance Brokers Association of India warns that proposed IRDAI reforms could lead to 10 lakh job losses and macroeconomic shocks.
The Insurance Brokers Association of India (IBAI) has raised a red flag over the Insurance Regulatory and Development Authority of India's (IRDAI) proposed changes to the insurance distribution architecture. During a press conference in Mumbai on Tuesday, industry leaders warned that these sweeping regulatory overhauls could lead to massive job losses and unintended macroeconomic consequences that could destabilize the sector.
Risk of 10 Lakh Job Losses
The scale of the potential disruption is significant. The IBAI highlighted that the current insurance distribution channel is a massive employer, supporting approximately 83 lakh people across the country. According to industry estimates presented by the association, if the proposed reforms lead to a 60–70% drop in broker revenues, the industry could face at least 10 lakh job losses.
Beyond the employment crisis, the association expressed concern that the reforms could leave Micro, Small, and Medium Enterprises (MSMEs) and small-scale policyholders vulnerable. These groups often rely heavily on independent intermediaries to navigate the complexities of claim settlements.
The Critical Role of Professional Brokers
Addressing the risks of mis-selling and the need for policy literacy, S Mohan, Vice President of IBAI, emphasized that insurance is a product that requires professional guidance rather than a simple over-the-counter purchase.
"Insurance is sold, not bought over the counter. It calls for professionals who take the time to explain clauses so policyholders are fully aware before signing. That is why an independent channel representing policyholders must exist," Mohan stated.
The association argued that professional brokers act as a vital buffer, helping buyers understand intricate policy clauses and ensuring they are not misled by complex terminology.
Addressing Policy Disputes and Claims
Sumit Bohra, Ex-President of IBAI, provided clarity on common points of contention regarding insurance policies. He noted that disputes often arise from the design of individual policies rather than systemic bias. While group policies often cover pre-existing diseases from day one, individual policies typically involve waiting periods of two to four years, which is where most friction occurs.
Bohra also noted that many issues regarding deductions are often linked to non-payable medical expenses prescribed by regulators, rather than outright rejections of claims.
Comparison with Global Standards
The IBAI pointed out several key metrics to defend the current efficiency of the Indian insurance landscape:
- Claim Ratios: Indian policyholders receive between ₹84.4 and ₹87 in claims for every ₹100 of premium paid, which is notably higher than the global average of 72–75%.
- Management Expenses: The industry's overall Management of Expenses (EoM) stands at 26.5%, comfortably below the 30% regulatory cap.
Calls for Caution and Impact Assessment
While the IBAI acknowledged the regulator's goals of increasing insurance penetration and lowering prices, they cautioned against implementing an "unprecedented global model" that lacks established benchmarks. The association has urged the IRDAI to adopt a longer glide path and to conduct an independent, third-party impact assessment before moving forward.
Furthermore, regarding the proposal for mandatory commission disclosures, the IBAI warned that making such information widely public could inadvertently trigger illegal rebating under Section 41 of the Insurance Act. They suggested aligning with global standards, where disclosures are provided upon customer request for traditional products, while reserving upfront disclosures for investment-linked plans like ULIPs.