A recent report has highlighted that non-life insurance in India has transformed into a distribution-driven business, where intermediaries capture the majority of profits while insurers bear underwriting losses and customers pay elevated premiums for policies like motor and health insurance. The study, titled 'The Big Profit Unlock in General Insurance' by Praxis Global Alliance, identifies commissions as a primary factor driving higher costs in the non-life segment.
Structural Commission Payouts
The report states, 'Intense competition to secure intermediary mindshare and wallet share keeps commission payouts structurally high, resulting in persistently elevated expense ratios across the industry.' This observation aligns with concerns expressed by Ajay Seth, chief of the Insurance Regulatory and Development Authority, who recently noted that persistently high commission payouts are squeezing margins and weakening underwriting profitability, particularly among public sector general insurers. He emphasized the need to scrutinize expense management norms and commission structures to ensure better value for customers.
Intermediary Model vs. Industry Expansion
The study finds that instead of investing in expanding the industry by covering more uninsured individuals, the current intermediary model forces insurers to pay continuous commissions for customer retention. Since insurers earn little from underwriting margins, they focus on topline growth because the premium float allows them to generate investment income. Consequently, investment income—around 21% of net written premium—rather than insurance operations, sustains profits.
Renewal Economics
In an intermediary-led model, there is a 15–20% difference between commissions for new and renewal business. However, renewal economics remain cost-heavy, with insurers incurring fresh commissions and acquisition-like expenses. As a result, each renewal behaves similarly to a new acquisition, limiting the ability to benefit from prior customer acquisition.
Health Insurance and Churn
In health insurance, a significant portion of premium growth stems from medical inflation, which stands at around 10–12%. The report highlights that Indian insurers experience high annual churn, with motor insurance seeing approximately 50–55% churn (35–45% in retail) and health insurance witnessing over 25% churn in the initial years.
