Athira Sethu
Kochi, 30 September 2026
The Insurance Regulatory and Development Authority of India (IRDAI) has put forth radical proposals in terms of insurance sales in India. The purpose of these proposals is to ensure customer protection, curtail mis-selling of insurance products and ensure transparency in the insurance sector.
Recently, IRDAI released a discussion paper titled ‘Recalibrating Economics of Insurance Distribution’. This discussion paper has been written with an emphasis on commissions, distribution cost, and other costs associated with insurance sales. IRDAI has invited views on these proposals till October 25, 2026.
What Are the Key Proposals?
One of the key proposals is that of capping the commission paid by insurers to distributors of insurance products. According to the proposals, the maximum commission paid in case of the first year of life insurance sale should be 20% to distributors and 25% to agents.
According to the proposals, insurers are expected to cut down the Expense of Management (EoM) during the next five years. This Expense of Management includes administration cost, distribution cost and other commissions. The proposed cap on EoM is 12.5% of gross direct premium for life insurance and 20% for general insurance.
Why is IRDAI Doing This?
The IRDAI says that in general, people buy insurance products not based on the cost and value of the product but on commission.
To illustrate this, between 2022-23 to 2024-25, general insurance premiums collected via brokers went up by 37%. But the commissions to them have risen by 173%.
For life insurance, premiums collected via corporate agents grew by 28% while commissions went up by 125%.
Thus, it can be seen that earnings of distributors have been increasing far more than insurance premiums.
What Will the Effects Be?
Online insurance portals like Policybazaar and TurtleMint will feel the heat since they are largely dependent on commissions and invest a lot in customer acquisition.
Banks too will be affected as they are important insurance distributors. However, banks which have their own insurance company will get lesser pressure since they stand to benefit from higher profits of insurers.
Yet Some Issues Persist
According to some authorities, lowering commissions alone may not help solve the issue of policy lapses among clients.
In addition, some authorities suggest that partial commissions be paid in future and related to how long the clients stay insured.
The other fear regarding reduction in commissions is that it may reduce the interest of insurers in offering cheap insurance policies.
Overall, the proposed reforms by IRDAI are expected to increase consumer protection while at the same time ensuring transparency in insurance distribution. Nevertheless, the final regulation should balance all the three aspects.
