India's insurance regulator has proposed limits on distribution costs and commissions as part of a broad overhaul aimed at reducing the cost of insurance and strengthening safeguards for policyholders.
The Insurance Regulatory and Development Authority of India (IRDAI) released a two-part consultation paper, “Recalibrating Economics of Insurance Distribution”, on 23 September, saying the proposals cover distributor remuneration, insurers’ expenses, market conduct, transparency and digital distribution. Stakeholder comments are invited until 25 October. The measures remain proposals and could be amended before any final regulations are introduced.
IRDAI is proposing a phased reduction in insurers’ Expense of Management (EoM) limits. For life insurers, the limit would be calculated at company level against Gross Direct Premium Income (GDPI), with a proposed ceiling of 15% within two years and 12.5% within five years. For general insurers, the calculation would move from Gross Written Premium to domestic GDPI, with the limit proposed to fall to 25% within two years and 20% within five years.
The regulator is also seeking to introduce more differentiated commission limits. Rather than applying a uniform approach, the proposed framework would consider the insurance segment, line of business, distribution channel, product complexity and the work required to sell and service a policy. Mandatory covers such as third-party motor insurance would attract little or no commission under the proposals, while commissions on health insurance would be subject to separate limits for new business, renewals and portability.
For life insurance, proposed first-year commission limits would vary according to policy term and distributor type. Reuters reported that the consultation paper proposes first-year commissions ranging from 5% to 20% for distributors depending on policy tenor, with commissions also spread across subsequent policy years rather than being concentrated in the first year. The proposals also envisage lower remuneration for products distributed through open-architecture channels such as brokers and banks.
IRDAI’s proposals extend beyond remuneration. The regulator has also proposed restrictions on compulsory bundling of insurance with loans and stronger controls over incentives for bank and non-bank financial company employees selling insurance. It also wants greater disclosure of commissions and distribution costs, stronger suitability requirements and measures to address mis-selling.
The consultation paper proposes reorganising the distribution framework around three broad categories: Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions. IRDAI also wants to expand the role of digital infrastructure, including Bima Sugam and the Public Insurance Registry, to provide customers with greater access to insurance information, comparison and servicing.
The regulator’s proposals come after a period in which distributor remuneration has grown faster than insurance business in several segments. IRDAI data cited in the consultation paper showed, for example, that distributor remuneration among a sampled group of corporate agents increased 125% between 2023 and 2025, while new business premium increased 28% over the same period.