Chhavi Singh, Associate Partner, Redseer Strategy Consultants, said, “As the IRDAI finalises the framework, comparing channels on their total cost of acquisition, supporting verified first-time buyers wherever they live, aligning renewal limits with servicing needs and phasing in the commission caps alongside the expense glide path could help the reforms deliver both efficiency and wider coverage.IRDAI’s proposals set a clear direction for cost discipline and transparency, and tighter limits are well supported where commission has risen without a matching increase in selling effort.”
Mumbai: A new report by a consulting firm Redseer Strategy Consultants, titled ‘Recalibrating Distribution Economics to Widen Insurance Coverage’, has highlighted significant disparities in insurance distribution costs, particularly in loan-linked channels.
The report, while appreciating the proposed IRDAI’s distribution reforms, points to the sharp rise in remuneration paid to NBFC corporate agents in life insurance, with average payouts increasing from around 7% of new business premium in FY2023 to 42% in FY2025, despite relatively limited selling effort.
It cautions that distribution reforms must also account for intermediaries that independently acquire and service customers. How remuneration is calibrated across these different distribution channels, the report argues, will have a significant bearing on the pace of insurance penetration and the achievement of the government’s Insurance for All by 2047 objective.
Chhavi Singh, Associate Partner, Redseer Strategy Consultants, said, “As the IRDAI finalises the framework, comparing channels on their total cost of acquisition, supporting verified first-time buyers wherever they live, aligning renewal limits with servicing needs and phasing in the commission caps alongside the expense glide path could help the reforms deliver both efficiency and wider coverage.IRDAI’s proposals set a clear direction for cost discipline and transparency, and tighter limits are well supported where commission has risen without a matching increase in selling effort.”
Insurance for All by 2047 will require adding insured lives at about three times the recent pace, largely among first-time customers who rely on assisted distribution, said Singh.
According to the report, the proposed limits may not fully cover the cost of acquiring and serving customers.
The report estimates the direct cost of assisted acquisition at about 25% of premium, while first-year limits for distribution entities, including the uplift for smaller towns and rural areas, reach up to 18% on retail health and 12% on motor own damage cover for existing vehicles.
The uplift recognises the higher cost of serving these markets, and extending similar support to first-time, lower-income customers in large cities could widen its reach.
Renewal limits could also be aligned more closely with servicing needs: For example, retail health, which involves an annual renewal decision and claims support, would carry 5% against 7.5% for pure term life. Renewing third-party cover for an existing 75-150cc two-wheeler (₹714 notified premium) would earn about ₹18 at the proposed 2.5% cap, against ₹157 today, when more than half of registered vehicles lack valid insurance.
Channel-level limits may affect customer choice and competition
The proposals set lower limits for distribution entities, which can offer several insurers’ products, than for agents tied to a single insurer. The report finds the selling effort broadly comparable, and estimates insurers’ non-commission costs on business sourced through PoSP-led broker channels at 8-10% below agency channels.
A PoSP could earn at most 50-83% of an agent’s commission on the same policy. Mid-size and newly licensed insurers, which rely more on intermediaries, may also need to make the largest adjustments to meet the expense limits.
Net additions to insured lives need to triple to reach Insurance for All by 2047
Health-insured lives grew about 3.1% a year between FY2020 and FY2025. Universal cover by 2047 would require about 4.9% a year, or 4.9 crore net additions annually against 1.6 crore recently.
The report suggests that IRDAI’s outcome assessment framework also track first-time buyers, lapse rates and distributor earnings.