IRDAI wants to overhaul how insurance is sold in India—and it goes beyond commissions

Motor insurance premiums grew around 34% between FY23 and FY25, but commissions paid to distributors jumped around 259% over the same period, according to a new consultation paper from the Insurance Regulatory and Development Authority of India (IRDAI). This divergence is among the data points that the regulator cited while proposing changes to how insurance is being distributed in India.

The two-part consultation paper by IRDAI, titled “Recalibrating Economics of Insurance Distribution”, goes well beyond commissions. It proposes changes to how insurers manage expenses, how banks and other intermediaries sell policies, who can distribute insurance, and how technology can give customers more direct ways to compare and buy policies.

Why IRDAI wants to change the system

The regulator's stated objective is to improve outcomes for policyholders, insurers and distributors, while making insurance distribution more competitive and cost-efficient.

IRDAI's analysis shows that commissions have risen faster than the underlying insurance business in several segments.

In retail health insurance, premium grew around 53% between FY23 and FY25, while broker commission increased around 118%. Average commission rates in retail health rose from around 10% to 30% during the period.

Life insurance shows a similar trend. Among sampled corporate-agent arrangements, new-business premium increased 1.28 times between FY23 and FY25, while commissions increased 2.25 times.

The issue is not simply the amount of commission. IRDAI is also concerned that incentives can influence what products distributors push to customers.

The regulator notes that bancassurance—essentially banks selling insurance policies—generates around 45% of private insurers' life-insurance premium and receives an average commission of 10% of total premium. In general insurance, bancassurance contributes around 5% of premium but receives an average commission of 26%.

What IRDAI wants to change

One major proposal is to bring down insurers' Expenses of Management (EoM)—broadly, the expenses involved in running an insurance business, including commissions and other operating costs.

IRDAI proposes a phased reduction rather than an overnight cut. For life insurers, EoM would come down to 15% of premium in two years and 12.5% in five years. For general insurers, the proposed limits are 25% in two years and 20% in five years.

The regulator is also proposing specific commission limits based on the complexity of a product and the effort required to sell it. It wants all forms of distributor payments, including incentives, rewards and other payments, to be considered while determining commissions, reducing the scope for companies to work around limits.

The proposed distribution architecture would also be simplified into three broad categories: Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs). In simple terms, these broadly cover distribution companies, individual sellers and digital infrastructure platforms.

What does this mean for customers?

One of the most direct changes concerns insurance bundled with loans.

IRDAI proposes prohibiting compulsory bundling of insurance with loans and other financial products. For instance, a bank should not make buying a particular insurance policy a mandatory condition for granting a home or vehicle loan.

Certain packages would still be permitted, but with safeguards. Customers would have to be told the interest rate with and without the insurance, would not have to buy the policy from that particular bank or NBFC, and would have to pay the insurance premium separately rather than have it deducted from the loan.

The proposal also seeks to prohibit volume-linked or reward-linked incentives for bank and NBFC employees selling insurance, including incentives such as trips, gifts, bonuses and contest rewards.

The regulator also wants to widen the places where consumers can buy insurance. Hospitals could distribute health insurance after registering as IDEs, subject to safeguards and lower commission limits. Non-dealer automobile garages could sell motor insurance by becoming associates of an insurer.

Stronger action against mis-selling

IRDAI is also proposing a system under which the identity of the salesperson would be tagged to the policy sold. Information on mis-selling incidents could become part of that person's public performance record, while insurers could be required to claw back commissions when mis-selling occurs.

The paper identifies examples such as presenting an insurance product as a fixed deposit, selling a regular-premium policy without explaining the consequences of discontinuing payments, or selling a product to a customer without considering their ability to pay.

From “insurance is sold” to “insurance is purchased”

IRDAI wants Market Infrastructure Institutions (MIIs) to provide fully digital, “pull-based” alternatives to traditional insurance distribution. Bima Sugam is one such platform, and IRDAI expects it to become operational with a wider range of products in the coming months.

It has also proposed a Public Insurance Registry (PIR) as digital public infrastructure for insurance. Among other things, the framework envisages “Know your Insurer” and “Know your Distributor” features, allowing customers to access information on the performance and conduct of insurers and distributors.

These are proposals, not final regulations. IRDAI has invited comments from stakeholders and the public, with the deadline for submissions set at October 25, 2026. The final framework could change after the consultation process.