The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a broad overhaul of insurance distribution economics, seeking to move the sector away from commission-led sales towards a model focused on affordability, customer outcomes, transparency and wider insurance coverage.
The consultation paper on “Reforms for Recalibrating Economics of Insurance Distribution” identifies high acquisition costs, concentration of distribution business, unequal regulatory treatment and remuneration structures that reward premium growth over customer outcomes as key structural challenges. IRDAI has said the proposed reforms are intended to improve consumer outcomes, strengthen competition and enhance operational efficiency.
The regulator’s intervention comes after the removal of product-wise commission caps under the 2023 Expenses of Management (EoM) framework. The paper says commission payouts have risen significantly since then and argues that the flexibility available under the EoM framework has not delivered the expected improvement in affordability or insurance penetration.
Industry representatives and legal experts see the proposals as a significant recalibration of how insurers and distributors structure their economics.
“Prima facie it seems that IRDA and government now wants to focus in semi urban and rural areas by using these tactics as insurance companies till now ignore government requests or suggestions,” said Hemang Jangla, Ex Director IBAI ( Insurance Brokers Association of India).
Jangla also raised concerns over the concentration of business among large intermediaries, saying, “there are only large intermediary and insurance company only collabs and doing business with them rest insurance company ignore and specially technology driven intermediary which was huge loss making entity but still get their stock listed on exchange convert risk transfer instrument in to commodity base product.”
According to Jangla, the proposed framework appears to have four broad objectives: discouraging the “crony capital model”, limiting performance-based commissions in metros and larger cities, permitting such incentives for business generated in semi-urban and rural markets, and increasing transparency between policyholders, insurers and intermediaries.
Commission reset
IRDAI has proposed a five-year glide path to reduce EoM levels, with life insurers moving towards 15% of premium in two years and 12.5% in five years, while general insurers would move towards 25% in two years and 20% in five years. It has also proposed mandatory cost audits covering insurer payouts and non-monetary incentives, as well as disclosures by larger insurance distribution entities.
The consultation paper also proposes hard commission limits based on product complexity, distribution architecture and the effort involved in selling the product. Open architecture distributors would have lower limits, while higher limits would be available for closed architecture. Mandatory or near-mandatory products would attract nil or very low commissions, while sales in underserved areas could qualify for additional rewards.
The proposals assume significance against the regulator’s assessment that, in a representative sample covering about 92% of premium procured through corporate agents, new business premium grew 28% between FY23 and FY25 while distributor remuneration increased 125%.
Indranath Bishnu, partner and head – insurance at Cyril Amarchand Mangaldas, said the proposed approach marks a return to more prescriptive regulation of distribution economics.
“The 2023–24 expense regulations deliberately removed commission caps and left commission to each insurer’s Board, within one company-wide expense limit. The new paper brings back caps set by product and channel, changes the base to gross direct premium, sets a glide path and makes cost audits mandatory. The regulator is back to a prescriptive regime of regulating the economics of distribution,” he said.
Anshul Verma, partner at SKV Law Offices, said the proposed framework should be viewed as a recalibration of a regulatory approach that has historically governed distribution economics.
“Distribution economics has been regulated in India in some form since the 1938 Act. The Insurance Act, 1938 carried commission ceilings, roughly 40 per cent of first year premium in life business and 15 per cent in general insurance. The Insurance Laws (Amendment) Act, 2015 moved those limits into regulations, and the 2023 regulations replaced product-wise caps with an overall ceiling on an insurer’s expenses of management,” Verma said.
The consultation paper also proposes additional commission for business sourced from smaller cities, towns and rural areas, with the objective of encouraging expansion into underserved geographies rather than concentrating sales in established markets.
Mis-selling and accountability
The consultation paper proposes to make all forms of remuneration, including monetary and non-monetary incentives, part of the commission framework and seeks to curb incentives that may encourage unsuitable sales.
IRDAI has also proposed tagging the functional identity of sales persons, PoSPs, agents or associates to policies and making information on mis-selling incidents available in the public domain. It proposes commission clawbacks in cases of mis-selling.
Bishnu said the measures may help address aggressive solicitation but would not, by themselves, eliminate mis-selling.
“Yes, caps on commissions may check the aggressive and reckless forms of solicitation that has plagues the industry, in the form of mis-selling, but only partially. Mis-selling is a much larger epidemic affecting the industry primarily stemming for unhealthy business practices rather than the sole desire to increase commission,” he said.
On clawbacks and public disclosure, he said, “The clawback is only a passing reference in the report and does not have any recommendations for substantive procedure. That said, any clawback should happen only after due process of enquiry, evidence and sufficient opportunity to defend against any allegations.”
Verma said, “Claw-back and publication should follow an actual finding of mis-selling rather than a complaint, since a commercial settlement is not a finding of fault and surrenders unconnected with the sale should not count either.”
Digital distribution
A major part of the proposed reforms is the creation of a more digitally driven insurance distribution architecture. IRDAI has proposed Market Infrastructure Institutions for Insurance, with Bima Sugam positioned as a customer-facing digital marketplace.
It also proposes a regulator-promoted Public Insurance Registry, or PIR, as business-facing digital infrastructure to facilitate discovery, verification and exchange of insurance information. The paper envisages these platforms enabling customers to compare products and insurers, access performance information and increasingly purchase insurance directly. Bima Sugam is expected to become operational with a wider bouquet of products, while additional insurer-promoted MIIs could emerge.
Bishnu said this could change the role of traditional intermediaries rather than eliminate them altogether.
“Bima Sugam and the PIR are designed to let customers discover, compare and buy insurance directly, reducing reliance on an intermediary to bridge the information gap. Intermediaries will remain relevant for complex or advice driven requirements, such as high-cover or co-insurance products,” he said.
“The role of intermediaries for simple, price-comparable products would become narrow but for complex savings and protection products advice still matters, so the value shifts from controlling access to advising on suitability and servicing, which is a change in the nature of the role, not its removal,” she said.
The consultation also proposes prohibiting compulsory bundling of insurance with loans and credit, while allowing specified package offers that demonstrably benefit customers.
IRDAI has invited comments from insurers, distributors, agents, policyholders and other stakeholders, with October 25, 2026 set as the deadline for submissions.
