Life insurance companies paid over Rs 42,000 crore as commissions in FY 2022-23: Irdai report

The Insurance Regulatory and Development Authority of India (Irdai) has released its FY 2022-23 annual report. As per the report, the life insurance companies paid a total commission of Rs 42,322 crore during FY 2022-23. The commission expenses slightly increased to 5.41% in FY 2022-23 from 5.18% in FY 2021-22. The percentage is expressed in terms of commission paid as the percentage of the premium received.

This comes as a surprise as the growth in commission payment has been much more than the growth in premium. Total commission outgo increased by 17.93% during FY 2022-23 compared to the previous year as per the annual report. However, the total premium grew by 12.98% during the year, per the report.

Also read: 50% of complaints against pvt life insurance companies in 22-23 were unfair business practice grievances: IRDAI

Private life insurers are catching up with LIC in higher commission payment

Further analysis of the commission data reveals that there is a marked difference between public and private life insurers when it comes to commission payment rise. Private-sector life insurance companies paid more money as commissions as compared to public-sector life insurance companies. The ratio of first-year commission to premium received in private sector companies grew from 10.94% in 2021-22 to 15.78% in FY 2022-23 – an increase of almost 5%.

However, despite this spike in private sector commission payment it is still very less than what is paid by the LIC of India. There was a very low growth in the public sector company’s first-year commission increased from 26.55% to 27.61% – a hike of approximately 1% only.

What comes as a surprise that this growth in commission payment by life insurance companies has come despite a dip in the first-year premium collection. For private-sector companies, the first-year premium collection decreased from Rs 73,943.39 crores in FY 2021-22 to Rs 70,834.75 crores in FY 2022-23. However, for public sector companies, the first-year premium collection increased from Rs 36,649.35 crores in FY 2021-22 to Rs 39,089.94 crores.

Where is this higher commission going?

A life insurance company offers different types of policies such as Unit-linked, term insurance, and non-linked endowment policies. Assessment of the IRDAI data suggests that there has been a substantial increase in the premium collected from non-linked policies (such as endowment plans, term plans etc.) as compared to unit-linked policies. After multiple reforms by IRDAI the commission structure in ULIPs were reduced significantly however the higher commission structure on non linked traditional plans continues.

The premium collected from non-linked policies – offering life coverage – increased from Rs 4,45,678.26 crore to Rs 5,05,741.57 crore. On the other hand, linked policies insurance premiums collected grew from Rs 88,625.45 crore to Rs 91,479.51 crore. Traditional products contributed to 86.59% of the total premium collected and the share of ULIPs stood at 13.41%.The business from traditional products grew by 14.40% and the same for ULIPs is 4.61%.
This means that private life insurance companies are focussing more on selling non linked plans including endowment plans than UILIPs which has resulted in higher growth in commission payment.

There has also been a substantial increase in the profit of the life insurance industry. The profit of the life insurance industry grew by 452% in 2022-23 with a profit after tax of Rs 42,788 crore as against Rs 7,751 crore in FY 2021-22. The substantial increase in profit is due to increase in the LIC’s profits as announced in the annual results.