The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a major overhaul of insurance distribution economics, including product-specific commission limits, tighter expense-of-management (EoM) ceilings and additional safeguards against mis-selling.
The proposals are contained in a consultation paper titled “Recalibrating Economics of Insurance Distribution”. The regulator has proposed that commissions be linked to factors such as the type of insurance product, distribution channel, policy size, product complexity and the effort involved in selling and servicing the policy.
Editorial Insight
Key Highlights
Important points readers should notice.
Issue/Event: IRDAI proposes changes to insurance commissions and distribution economics
Location: India
Authority/Organisation: Insurance Regulatory and Development Authority of India
Action Taken: Consultation paper issued proposing commission caps, lower expense limits and stronger anti-mis-selling measures
Impact: Insurers, agents, brokers, banks and digital insurance distributors could see changes in their distribution economics if the proposals are implemented
For general insurers, IRDAI has proposed reducing the segment-level EoM limit from 30% to 20% over five years. For life insurers, the proposed framework would progressively lower expense limits, with a long-term sector-level benchmark of 10% for insurers that were already below the proposed benchmark in FY2025.
The regulator has also proposed bringing back product-level commission caps for life insurance. For individual non-linked and linked policies with a premium payment term of 10 years or more, the proposed first-year commission ceiling is 25% for agents and 20% for distribution entities. The proposed limits vary according to the premium-payment period and distribution channel.
The proposed framework also seeks tighter controls on insurance sold alongside loans or credit. IRDAI has proposed prohibiting compulsory bundling of insurance with credit or loan products, while allowing permissible combinations where the products are appropriately structured.
Editorial Analysis
Why This Matters
Insurance distribution costs directly affect how insurers sell policies and how intermediaries are compensated. The proposed changes could therefore influence the business models of agents, brokers, banks and online insurance platforms, while potentially changing how insurers structure their distribution expenses. For customers, the key question will be whether the final framework translates into lower distribution costs, better transparency or changes in the pricing and availability of insurance products.
The consultation paper further proposes restrictions on volume-linked or reward-linked incentives for bank and NBFC employees involved in selling insurance. It also proposes greater accountability for mis-selling, including possible clawback of commissions in cases where mis-selling is established.
What Could Change:
For insurers, the proposed lower EoM limits could require tighter control over distribution and operating expenses.
For agents, brokers, banks and digital insurance distributors, product-specific commission ceilings could alter the economics of selling different categories of insurance.
For policyholders, IRDAI says the proposals are intended to improve cost efficiency, strengthen safeguards and enhance value. However, the actual effect on premiums and distribution practices would depend on the final regulations and how insurers and intermediaries adapt.
The proposals have already affected investor sentiment. Insurance distributors and several insurance-related stocks came under pressure on September 24 after the consultation paper was reported. PB Fintech and other distribution-focused companies recorded sharp declines during trading.
Official Response:
IRDAI has said the proposed measures are aimed at improving cost efficiency, strengthening safeguards around insurance distribution and enhancing value for policyholders.
The regulator has invited stakeholder feedback before finalising the framework. Therefore, the proposed commission caps and expense limits should not be treated as final rules at this stage.
