IRDAI Extends Consultation on Commission Overhaul as Industry Backlash Mounts
The Insurance Regulatory and Development Authority of India (IRDAI) has granted stakeholders an extension to weigh in on its proposed “Recalibrating Economics of Insurance Distribution” framework. Following an influx of more than 650 responses, the deadline for public and industry feedback has been pushed to October 31, 2026. The move comes as insurance intermediaries brace for potential revenue losses of 60% to 70% under the sweeping reforms.
The Push for Regulatory Reform
The regulator’s latest initiative aims to undo the deregulation enacted in 2023, when officials moved from product-level commission caps to a unified management expense limit. IRDAI officials argue that the previous move inadvertently caused distribution costs to outpace premium growth.
Data from the 2022-23 to 2024-25 period supports the regulator’s concerns: while life insurance premiums grew by 28%, payouts to corporate agents surged by 125%. The general insurance sector saw an even sharper divergence, with broker commissions ballooning by 173% despite a 37% growth in premiums. Furthermore, the rising trend of policy surrenders—which reached 39% of total life insurance benefits in FY26—has fueled fears that the current commission structure incentivizes aggressive selling over long-term customer retention.
Proposed Caps and Expense Limits
The draft proposal introduces a tiered commission structure based on product type and term. First-year life insurance commissions would be strictly capped—ranging from 5% to 20% for intermediaries and 6.25% to 25% for agents. For health insurance, new policy commissions would be limited to 15%, with renewals restricted to 5%.
In a move to curb predatory lending practices, the regulator suggests banning commissions on compulsory motor third-party covers and capping commissions on insurance products tied to loans at a mere 2% to 5%. Additionally, the proposal prohibits the practice of mandating insurance as a condition for credit.
The overhaul also targets the operational expenditure of insurance companies. Under the proposed rules, life insurers would be required to bring expenses of management down to 15% of gross direct premium income within two years, eventually dropping to 12.5% within five years. General insurers face a similarly steep path, with their expenditure limits set to decrease from 30% to 20% over the same five-year window.
Industry Resistance and Economic Concerns
The Insurance Brokers Association of India (IBAI) has been at the forefront of the opposition, warning that these measures could threaten the livelihoods of approximately one million people within the sector. S. Mohan, vice president of IBAI, emphasized that the human element of insurance distribution is vital for penetration in a country where protection products are traditionally “sold, not bought.”
The association has urged the regulator to maintain the status quo until the original 2028 review date. IBAI representatives have requested that the IRDAI conduct a formal, transparent impact assessment before finalizing any new rules, suggesting that if caps are necessary, they should be applied selectively to credit-linked sales rather than the broader insurance market.
As India seeks to boost its insurance penetration—which sat at 3.7% in FY25—the outcome of these deliberations will be critical. With Swiss Re forecasting a 6.9% annual premium growth through 2030, the tension between maintaining cost-efficiency and supporting the distribution network remains the central challenge for regulators in the coming months.
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