IRDAI Shock Move: Insurance Commissions Face a Major Reset

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a wide-ranging overhaul of insurance distribution, with changes covering commissions, insurer expenses, Bank-led sales, mis-selling and digital platforms. The proposals are part of a consultation paper released on September 23, titled “Recalibrating Economics of Insurance Distribution”. These are still proposals, with stakeholder feedback invited until October 25, 2026.

The regulator's move comes after distributor payouts increased much faster than new business premiums. In a sample covering around 92 per cent of premium procured through corporate agents, distributor remuneration increased 125 per cent between FY23 and FY25, while new business premium rose 28 per cent.

Commission Rules Could Become Tighter
IRDAI has proposed bringing back specific commission limits based on the type of insurance, distribution channel, product complexity and effort involved in selling and servicing the policy.

For individual non-linked and linked life insurance products, the proposed first-year commission for distribution entities ranges from 5 per cent to 20 per cent, while agents could receive 6.25 per cent to 25 per cent, depending on the premium payment term.

The proposal also seeks to treat monetary as well as non-monetary payments, incentives and rewards to distributors as commission for regulatory purposes.

Insurers May Face Lower Expense Limits
IRDAI has proposed a five-year reduction in Expenses of Management (EoM). For life insurers, the limit would fall to 15 per cent of Gross Direct Premium Income within two years and 12.5 per cent within five years.

For general insurers, the proposed limit would move from 30 per cent currently to 25 per cent within two years and 20 per cent within five years.

The regulator has also proposed reducing the regulatory fee paid by insurers from 0.05 per cent to 0.04 per cent of premium, subject to a maximum of Rs 20 crore.

Banks And Mis-Selling Under Focus
The proposals seek to prohibit compulsory bundling of insurance with loans or credit, except where permitted combinations benefit policyholders. IRDAI has also proposed stopping volume-linked or reward-linked incentives for bank and NBFC employees selling insurance.

The regulator wants stronger accountability for mis-selling, including linking individual salespersons to policies and allowing commission clawbacks in cases of mis-selling.

Digital insurance platforms are also part of the proposed framework. IRDAI has suggested three broad distribution categories and has identified Market Infrastructure Institutions, including Bima Sugam, as a potential digital, pull-based distribution route.

The proposals are not final regulations yet. Stakeholders can submit their comments until October 25, after which IRDAI will decide the final framework.

Disclaimer: The article is for informational purposes only and not investment advice.