Key Details
IRDAI’s two-part consultation papers propose an overhaul of insurance distribution with evidence on what insurers pay to acquire business.
Insurer expenses: Proposed five-year limits are 12.5% of premium for life insurers and 20% for general insurers, with FY2027–28 as year one. Certain already lower-cost life insurers would have a 10% endpoint.
Sales commissions: Proposed ceilings vary by product, sales channel and whether a policy is new or renewed. Incentives and other indirect distributor payments would count towards the ceilings.
Distributor structure: Existing categories would be consolidated into Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and insurer-backed Market Infrastructure Institutions (MIIs).
Customer safeguards: The proposals address compulsory insurance bundling with loans, unsuitable sales, limited access to comparable information and dealer influence over motor-insurance purchases.
Consultation status: These are proposals, not rules in force. Comments are due by 25 October 2026.
Rising Payouts Prompt a Rethink of Sales Incentives
IRDAI’s Recalibrating Economics of Insurance Distribution consultation argues that competition for access to distributors is raising costs without sufficiently expanding coverage. In a sample covering about 92% of life-insurance premium procured through corporate agents, new-business premium grew 28% from FY23 to FY25; total distributor remuneration, including rewards and incentives, grew 125%. In a separate analysis of general-insurance business placed through brokers, premium rose about 37% while commission including rewards rose about 173%.
These are findings for the channels studied, not growth rates for the entire insurance industry. They explain why IRDAI proposes counting all distributor remuneration—not just base commission—when applying caps. It also proposes annual cost audits for insurers and large distribution entities.
Lower Costs, with Different Limits for Different Sales
The proposed expense limits would tighten over five years. Commission caps would reflect the effort involved in selling a product: for example, mandatory third-party motor cover on a new vehicle would attract no commission for a distribution entity and a 2.5% ceiling for an insurer’s agent or associate. Renewed health policies would carry lower ceilings than first-time sales.
The design also allows additional commission for individual policies sold in specified smaller towns and rural areas. IRDAI is therefore seeking to lower acquisition costs without removing incentives to serve less-covered markets.
More Choice and Clearer Responsibility for Each Sale
IRDAI proposes easier entry for distribution entities, alongside stronger training and accountability for the people selling policies. A seller’s identity would be linked to the policy, making it easier to establish responsibility when a sale is challenged.
For customers, the proposed safeguards include suitability checks for relevant life-insurance sales, accessible product and price information without first surrendering personal details, and a prohibition on compulsory insurance bundling by banks and non-bank lenders. Voluntary packages that offer a demonstrable customer benefit could continue under safeguards.
The consultation also envisages neutral digital marketplaces such as Bima Sugam and a Public Insurance Registry to support verified information and comparison. Bima Sugam is not presented as already fully operational; the Registry has also been the subject of a separate consultation.
Policy Relevance
Will savings reach policyholders? Lower commissions reduce insurers’ costs, but the benefit may appear as lower premiums, better returns on life policies or improved service—or remain with insurers. Comparable price and performance disclosures would help establish where it goes.
Will distribution reach new customers? Tighter caps could affect sales effort in rural and underserved markets. The proposed extra commission for these areas should be judged against new coverage, not simply higher premium collected from existing customers.
Who is accountable for an unsuitable sale? Linking each policy to its seller, documenting suitability and counting indirect incentives within commission would give IRDAI clearer evidence of sales conduct. The meaningful measures are fewer substantiated mis-selling complaints, premature policy exits and avoidable disputes.
Follow the Full Consultation Papers Here: Part 1: Consultation paper on Distribution Reforms & Part 2: Distribution Costs and Commission Structure