IRDAI insurance reforms: 4 changes that could make buying policies safer and easier

IRDAI has proposed major changes to insurance distribution, expenses, commissions and digital infrastructure. The consultation paper aims to improve transparency and strengthen policyholder protection. For customers, the proposals could mean clearer information on distribution costs, stronger safeguards against mis-selling and easier digital comparison and servicing. However, these are proposed changes and should not be treated as final rules yet.

IRDAI has proposed reducing insurers’ Expense of Management limits in phases. For life insurers, the limit could fall to 15% of Gross Direct Premium Income within two years and 12.5% within five years. For general insurers, the limit could move to 20% of GDPI over five years. IRDAI says lower costs could support affordability, but premiums may not automatically fall for every customer.

The proposed framework seeks greater transparency around insurance commissions. Insurers and large distribution entities would have to disclose their commission policies and structures in a simple, accessible manner. This could help customers understand more clearly how distribution costs are built into the insurance-selling process and make it easier to assess the overall cost of a policy.

The proposals seek greater accountability from insurance distributors. They include documenting customer needs and suitability, covering direct and indirect remuneration under commission and restricting volume- or reward-linked incentives for bank and NBFC employees. IRDAI also proposes identifying the individual who sold each policy, publishing mis-selling information and allowing commission claw- back when mis-selling occurs.

IRDAI proposes clearer rules for open and closed distribution models and greater transparency around distribution practices. The regulator says the proposed structure is intended to encourage competition and improve customer choice.

However, an industry concern is that the commission structure could encourage distributors to align with a single insurer, potentially reducing the number of policies customers can compare.

The proposals could also affect how motor insurance is sold through dealers. Dealers would not be permitted to deny cashless repair simply because a customer bought insurance from another provider, according to an expert cited in the source. IRDAI also proposes giving customers greater access to alternative digital channels such as Bima Sugam when buying motor insurance at the point of vehicle sale.

IRDAI has proposed greater use of digital infrastructure, including Bima Sugam and the Public Insurance Registry. The proposed system is intended to support easier comparison, portability, transparency and servicing. For policyholders, greater use of these platforms could make insurance easier to buy and manage while improving access to products, including for customers who remain underserved.

Lower-value policies could face a different challenge. An industry expert cited in the source points to two-wheeler insurance, where a 5% commission on an ₹800 own- damage premium would leave around ₹40 at the distribution-entity level before other distribution economics. The concern is that such low commissions could make these policies less attractive to distributors. IRDAI proposes additional rewards for underserved areas.