Greater transparency would be required from insurers and large distribution entities, which would have to disclose commission policies and structures in a simple and accessible manner. Specified commercial insurance policies would also carry commission disclosures, giving customers greater visibility into distribution costs embedded in premiums, said the IRDAI.
The proposals would also prohibit volume- or reward-linked incentives for bank and NBFC employees selling insurance, link the identity of individual sellers to policies issued, put information on mis-selling incidents in the public domain and allow commission claw-backs where mis-selling is established.
“It will be a death knell for the brokers particularly small and medium size players. Now agents will be paid higher commission than brokers,” said a senior insurance broker.
Hyderabad: Proposing tighter expense of management(EoM) limits, sharper curbs on commissions and mis-selling,the Indian insurance regulator IRDAI, on Wednesday, has said for general insurers, the EoM calculation would move from Gross Written Premium (GWP) to domestic GDPI, with the ceiling progressively reduced from 30% of GWP to 20% of GDPI over five years.
For life insurers’s the EoM ceiling would shift to a company-level measure linked to Gross Direct Premium Income (GDPI), falling to 15% within two years and 12.5% within five years, said IRDAI, unveling its long awaited proposals on distribution reforms on Wednesday.
Further commission structures would become more differentiated, taking into account the insurance segment, line of business, distribution channel, product complexity and the effort required for sales and servicing. Additional rewards could be permitted for selling policies in underserved markets, including rural areas, small towns with populations of up to 50,000 and smaller cities with populations of up to 10 lakh.
The proposals also envisage cost audits and safeguards against indirect payments, aimed at improving accountability for actual distribution costs.
Greater transparency would be required from insurers and large distribution entities, which would have to disclose commission policies and structures in a simple and accessible manner. Specified commercial insurance policies would also carry commission disclosures, giving customers greater visibility into distribution costs embedded in premiums.
The proposals would also prohibit volume- or reward-linked incentives for bank and NBFC employees selling insurance, link the identity of individual sellers to policies issued, put information on mis-selling incidents in the public domain and allow commission claw-backs where mis-selling is established.
The IRDAI), on Wednesday, released a Public Consultation Paper on “Recalibrating Economics of Insurance Distribution”, setting out a comprehensive framework of reforms covering the insurance distribution, its structure, expenses, commissions, market conduct, transparency and leveraging digital infrastructure.
The proposed framework takes a tougher line on mis-selling and forced bundling. Insurers and distributors would be required to document customer needs and product suitability, while all forms of remuneration—whether direct or indirect, monetary or non-monetary—would be brought within the regulatory definition of commission.
The proposed reforms seek to cut insurance distribution costs, tighten commission practices and strengthen accountability, while giving insurers and distributors greater flexibility to expand into underserved markets.
The regulatory fee payable by insurers is also proposed to be reduced.
The regulator has sought feedback until October 25 before finalising the proposals.
Key proposals in new commission structure
-Mandatory insurance covers such as third-party motor policies would earn little or no commission.
-Commissions for banks and lenders selling insurance alongside loans are proposed to be capped at 2% to 5% depending on the product.
-Compulsory bundling of insurance with credit would be banned.
-Commissions on health insurance are proposed to be capped between 15% and 20% for distributors for the first time when insurance is taken. Commissions on renewal and porting of insurance to a different insurer have been capped at a lower level of 5% to 10%.
-Commissions on motor insurance will be capped at 5% to 10% for personal accident cover, the regulator proposed.
-For life insurance, the first-year commission has been capped at between 5% and 20% for distributors depending on the tenor of the policy.
The regulator also proposes monitoring “dark patterns” and making relevant performance information publicly available to strengthen market discipline.
The proposed EoM reduction is aimed at lowering the overall cost of insurance, potentially widening the risk pool in general insurance and improving returns for customers in life savings products. The phased implementation is intended to balance customer value and affordability with the financial sustainability of insurers.
However, insurance brokers have reacted sharply against the IRDAI’s new commission structure.
“It will be a death knell for the brokers particularly small and medium size players. Now agents will be paid higher commission than brokers,” said a senior insurance broker.
Digital infrastructure is an important part of this transition.
The consultation paper proposes Market Infrastructure Institutions (MIIs) for insurance as digital, pull-based alternatives for insurance distribution, with Bima Sugam identified as one such infrastructure. The paper also envisages greater use of the Public Insurance Registry (PIR) to support transparency, comparison, portability and operational efficiency
Together, these digital and technology-enabled channels are intended to improve ease of purchase and servicing, expand consumer choice and facilitate wider access to insurance, including among currently underserved segments.
Distribution architecture to be simplified
The proposals also seek to overhaul the insurance distribution architecture through simpler registration, lower entry and capital requirements, reduced regulatory fees and greater flexibility for distributors to undertake insurance alongside other financial and non-financial activities.
It seeks to replace the existing complex and fragmented architecture with three broad categories of distribution entities namely Insurance Distribution Entities (IDEs),Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs).
Entities operating under the same structure would have the same scope of business, obligations and regulatory framework. A clearer distinction between open and closed distribution architectures is proposed to promote competition while reducing regulatory arbitrage and operational constraints.
The reforms are aimed at making distribution more customer-facing, allowing policyholders to clearly understand who they are buying insurance through while expanding opportunities for Insurance Distribution Platforms (IDPs).
The proposed changes could also open the distribution market to entrepreneurs in smaller towns and markets, with the stated objective of expanding insurance reach, generating employment and improving income opportunities across the country, said the IRDAI.
The primary aim is to foster a customer-centric, competitive, efficient and transparent distribution ecosystem, while enabling better and sustainable outcomes for policyholders, insurers and distributors.
The proposed reforms are anchored in the expectations of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, which seeks to accelerate the growth and development of the insurance sector, strengthen policyholder protection, improve ease of doing business and enhance transparency in regulation making and regulatory oversight.
In furtherance of these objectives, the proposed distribution reforms seek to create a simpler, more open and competitive ecosystem by easing entry, expanding business and income opportunities, enabling non-insurance financial and non-financial activities, facilitating employment, removing operational constraints, strengthening skills through cost-efficient training, and setting clear regulatory expectations.