IRDAI proposes sweeping changes to insurance distribution: Commissions, costs, mis-selling rules

In a move aimed at a more transparent and customer-centric insurance distribution framework, the Insurance Regulatory and Development Authority of India (Irdai) has proposed a broad overhaul of the distribution ecosystem, citing high costs, rising commissions, and fragmented intermediary structures.

In a two-part consultation paper, the regulator proposes moving towards a simpler distribution architecture with three broad distributor categories, lower entry barriers and reduced capital requirements. It proposes a glide path towards company-level expense limits of 12.5% of gross direct premium in come (GDPI) for life insurers and 20% of GDPI for general insurers within five years.

Claiming that the removal of caps in 2023 had led to a significant rise in commissions for both life and general insurance, it has argued that a recalibration—based on product, segment and distribution channel—is essential to achieve lower levels of expenses of management (EoM). The regulator proposes including rewards, incentives and other distributor payments within commission calculations, while providing stronger incentives for persistency and distribution in underserved areas.


“The focus should not be only on reducing upfront commissions, but also on ensuring that distributors have adequate economics to provide quality advice and servicing throughout the life of a policy,” says Mayank Gosar, chartered accountant & financial services professional.

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If distributors are not adequately compensated for servicing, the willingness and ability of smaller distributors to provide such support could reduce. This could be particularly problematic at the claims stage. If the intermediary who sold the policy is no longer economically incentivised to remain involved, the customer may ultimately be left to navigate a complicated claims process on their own, adds Gosar.

“It’s also important to consider the impact on low-premium products such as two-wheeler insurance. A 5% commission on an own damage premium of Rs.800 would leave around Rs.40 at the distribution entity level. This could become difficult to sustain a distribution network for lower-value policies, potentially making this segment less attractive for those on the ground,” says Indraneel Chatterjee, COO and Co-Founder, InsuranceDekho.

He also raises concern about third-party insurance. “This pricing is fixed today, and the product is distributed on the strength of its commission. If that commission goes away, the number of uninsured vehicles on the road, already almost 60% in the two wheeler segment, is likely to rise further,” he adds.

The proposals also include commission disclosures by insurers, greater visibility on distribution costs for customers, stronger safeguards against compulsory insurance bundling, tracking of dark patterns in distribution and insurance mis-selling, and direct digital access to products.

“Each proposal addresses something real. Banning dark patterns is long overdue, standardised, plain-language disclosures are important, and the commission and expenses of management, transparency is the accountability layer this industry has needed for a long time,” says Saurabh Vijayvergia, Founder & CEO, CoverSure. With mounting concerns over the viability of business, insurance companies are likely to push back against the proposals. The regulator has invited stakeholder comments on the proposals till 25 October. —riju.mehta@timesofindia.com