In a statement, IBAI noted that it 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.
Rather, IBAI’s concern is that the paper’s central instrument, more than 30 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.
The paper overrides the policyholder’s own choice
According to IBAI, every policyholder in India can buy insurance directly from an insurer. But 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.
The association also noted that the paper does not distinguish between insurance sold to a customer and insurance chosen by a customer through an advisor of their own appointment. Rather, it proposes to pay the customer’s own broker less than the insurer’s tied agent, a departure from IRDAI’s consistent position since brokers were introduced in 2002.
“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,” said an IBAI spokesperson.
“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.”
The evidence does not support the remedy
IBAI also stated that 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, IBAI pointed out. It added that 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 also 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
IBAI stressed that as of 31 March 2025, insurance brokers sponsored INR14.81 ($0.15) lakh of India’s INR27.18 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.
According to IBAI, 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.
It also noted that 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, the association highlighted.
“Insurance is a people business,” IBAI’s spokesperson added.
“The paper 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.”
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, IBAI stated. They will also affect different parts of the industry very differently.
It also pointed out that 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 30-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, IBAI added.
Out of step with global practice and India’s own experience
Eighteen of the 20 largest non-life markets in the world impose no commission caps on commercial lines, IBAI said.
It added that 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
Lastly, IBAI stated that it will urge 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; to require 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,” IBAI’s spokesperson said.
“We will place our detailed response before IRDAI by 25 October and remain committed to constructive engagement with the regulator and the Government.”