What Does It Mean For Consumers That The IRDAI Allows Direct Selling Of Insurance Plans?


What Does It Mean For Consumers That The IRDAI Allows Direct Selling Of Insurance Plans?

April 7, 2023: While direct plans, which allow investors to buy investment plans without the help of a distributor or intermediary, are prevalent in mutual funds, similar options were not previously available in the insurance industry.

After receiving approval from the Insurance Regulatory Development Authority (IRDAI), the new regulation will come into force from 1st April, 2023. Therefore, it is important to understand their strategies.

By choosing this option, the client can purchase the plan directly from the Asset Management Company (AMC), resulting in greater financial savings.

Every insurer should have a well-documented policy which is authorized annually by the board and which shows how the benefits of cost reduction or direct source business will be transferred to the policyholder through reduction in premiums.

According to Chanthil Iyer, founder and chief strategist, Horus Financial Consultants, insurance firms spend on insurance plans in two different ways: administration fees and mortality fees.

ULIPs invest in market-linked funds, so there is a fund management fee in case of Unit-Linked Insurance Plans (ULIPs).

According to Iyer, insurance providers “seriously feel” that consumers are not buying insurance policies on their own and should be marketed to them instead.

As a result, they rely significantly on insurance brokers and compensate them generously through commission. Most of their administrative fees are made up of these commissions.

Although awareness has increased, more consumers are now going directly to insurance providers to purchase their own insurance coverage.

But, until a few years ago, those clients had no way to accept offers without an agency code, so they were forced to buy insurance through agents. Some insurance providers saw this demand and introduced direct plans for goods such as term insurance.

Yet IRDAI believes they are not passing on the full amount of agent commission savings to their customers in the form of lower premiums or better returns on their policies, according to Iyer.

IRDAI has enacted this new law to ensure that any cost savings are fully transferred to consumers who voluntarily purchase insurance from these businesses.

IRDAI regulations permit insurance companies to offer insurance products directly to policyholders without using intermediaries such as agents or brokers.

In such circumstances, management costs—including commissions due to agents—are reduced. Until now, insurance providers were not forced to pass on this benefit – in the form of lower premiums – to consumers.

As per IRDAI’s most recent clarification, life insurance companies will now have to reduce the rates of policies purchased directly from them to pass on the savings in administrative costs.

Through this action, insurance companies want to increase direct sales and give policyholders more for their money.

It is important to remember that the type of policy and insurance provider can affect how much the premium is reduced.

Therefore, before purchasing an insurance policy, consumers are recommended to evaluate the plans and prices from several insurance companies.

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