The association urges the IRDAI to preserve the 2023 framework, publish an impact assessment and target genuine mis-selling instead of imposing blanket commission caps
Mumbai: The Insurance Brokers Association of India (IBAI), the official apex body of India’s 798 licensed insurance brokers, today expressed serious concern over the sweeping proposals which are in the consultation paper on “Reforms for Recalibrating Economics of Insurance Distribution” released by the regulator IRDAI on 23 September 2026.
The IBAI has argued that the paper’s key proposal removing more than thirty separate commission caps by product and channel, together with a one-third cut in insurers’ overall expense limit — will harm the very policyholders it seeks to protect.
For general insurers, the IRDAI has proposed shifting the basis for EoM calculations from gross written premium (GWP) to domestic gross direct premium income (GDPI), with the ceiling progressively reduced from 30% of GWP to 20% of GDPI over five years.
For life insurers, the proposed EoM ceiling would move to a company-level measure linked to GDPI, with the limit falling to 15% within two years and 12.5% within five years.
The consultation paper also proposes a differentiated commission framework based on the insurance segment, line of business, distribution channel, product complexity and the effort involved in sales and servicing.
The IRDAI paper does not distinguish between insurance sold to a customer and insurance chosen by a customer through an advisor of their own appointment. It proposes to pay the customer’s own broker less than the insurer’s tied agent, a departure from the regulator’s consistent position since brokers were introduced in 2002, highlighted the IBAI.
The IBAI has pointed out that commission caps where the intermediary earns below the cost of serving these customers will end reach to these customers,defeating the very objective of this reform. Inside insurers, an expense limit reduced by over 30% within five years cannot be met by efficiency alone; insurance companies will land up reducing sales, servicing and claims staff at private and public sector insurers alike. These are the exact issues that plague the industry today, and the effect the consultation paper will have can be the opposite of what was intended.
Insurance is a people business.
“By IRDAI’s own data, 69% of complaints against general insurers concern claims, and 63% of complaints on its own portal are decided in the customer’s favour. In a market where claims remain the policyholder’s principal concern, weakening the one participant whose duty runs to the customer cannot serve the customer’s interest,” said an IBAI spokesperson.
The new proposals will reduce the people who reach customers in small towns and the people who service them inside insurers, and it contains no mechanism to ensure that the savings reach policyholders as lower premiums,” the spokesperson added.
Growth, competition and investor confidence
The proposals will reduce distribution reach precisely when India’s Insurance for All by 2047 agenda requires more of it.
Every policyholder in India can buy insurance directly from an insurer. Most individuals and almost every business choose instead to appoint an insurance broker — the only distributor who is legally bound to act for the customer and not for the insurer — because someone must negotiate the cover, compare the market and fight the claim, said the IBAI..
The evidence does not support the remedy
The paper’s own figures show that total expenses of management in general insurance fell from 28.2% of premium in FY2022-23 to 26.5% in FY2024-25, while premium grew by about 13% a year. The apparent rise in reported commission over that period largely reflects the reclassification of payments previously reported under other heads — a change the paper itself acknowledges.
The paper further identifies that high commissions are concentrated in captive channels where the customer exercises little choice, yet applies its caps to all channels and sets the lowest limits for independent brokers.
IBAI has observed that the paper’s presentation relies in places on outlying commission and margin figures that do not represent industry averages; excessive remuneration where customers have little choice should be curbed through fair-conduct rules, but the great majority of brokers operate on modest margins, and a balanced representation of the data will serve the consultation better.Jobs will be lost in distribution and inside insurance companies.
They will also affect different parts of the industry very differently. Public sector insurers, small and emerging insurers, standalone health insurers and listed insurers each face their own challenges of compliance, cost structure and capital under a uniform framework, and the combined effect of thirty-plus limits, a one-third cut in the expense ceiling and a substantial new compliance load is a non-level playing field in which ease of doing business and market forces are both diminished.
The proposals also reverse a three-year-old framework before its own scheduled 2028 review and without a regulatory impact assessment, at a time when the sector has been opened to 100% foreign investment and regulatory stability matters more than ever.
Out of step with global practice and India’s own experience
According to IBAI,eighteen of the twenty largest non-life markets in the world impose no commission caps on commercial lines. Leading regulators supervise conduct, conflicts of interest and fair value, not prices, and disclose commission to customers on request — a standard Indian regulation already meets.
India’s own experience with commission caps between 2002 and 2023 produced disguised payments and tax non-compliance that the 2023 reform resolved.
A constructive way forward
IBAI has urged the IRDAI to retain the 2023 expense-of-management framework, with tighter computation rules if required, to confine caps to credit-linked and other coerced-choice sales where the paper’s evidence is strongest,
It has also suggested that insurers to refund premium to customers where such segments run persistently low claims ratios, as PMFBY, Ayushman Bharat and no-claim bonus already do; to exempt commercial and large risks; and to publish a regulatory impact assessment before any regulation is drafted.
“This is not an argument against reform. It is an argument for reform that reaches the policyholder. We will place our detailed response before IRDAI by 25 October and remain committed to constructive engagement with the regulator and the Government,” the spokesperson said.
The IBAI supports the regulator’s stated objectives of policyholder protection, transparency, curbing mis-selling and wider insurance coverage. It also supports several measures in the paper, including the prohibition of compulsory bundling of insurance with loans, enforceable suitability obligations, claw-back of commission for proven mis-selling, transparency of related-party payments and identity tagging of salespersons.
As at 31 March 2025, insurance brokers sponsored 14.81 lakh of India’s 27.18 lakh point-of-sale persons and 16,230 of 26,316 motor insurance service providers, most of them self-employed in Tier-2 and Tier- 3 towns, in addition to the professionals employed directly by broking firms.