The Insurance Regulatory and Development Authority of India (Irdai), the country’s primary insurance regulator, is currently contemplating a significant overhaul of the commission structure for insurance distributors. This proposed framework aims to base commission payouts on the actual effort expended by distributors in both selling and servicing insurance products. However, this potential change has sparked considerable apprehension among life insurers, who are concerned that reduced commissions for group and embedded insurance products could severely impact the accessibility of coverage for low-income borrowers. These vulnerable segments of the population often acquire insurance through established channels like banks, Non-Banking Financial Companies (NBFCs), and microfinance institutions.
While the specific details of this “effort hierarchy” are yet to be formally disclosed, early indications suggest a tiered system. Individual agents are likely to occupy the highest tier, reflecting the perceived personalized effort involved in their sales and service. They would be followed by brokers, then bancassurance distributors (financial institutions selling insurance products), and corporate agents. At the lowest rung of this proposed pyramid would be Original Equipment Manufacturer (OEM) channels, such as auto dealerships, and web aggregators, implying the lowest commission caps for these channels. Concurrently, Irdai has initiated efforts to mandate commission disclosures from intermediaries. This move stems from a growing concern within the regulatory body that high commission payouts, particularly through institutional channels, might be incentivizing mis-selling practices.
Life insurers acknowledge that a review of certain institutional commission rates may be warranted. Nevertheless, they caution against the implementation of a broad, effort-based model without careful consideration of its wider ramifications. They argue that such a model could render low-premium and group insurance covers financially unviable for distributors. This is a critical point, especially given the substantial contribution of corporate agents and brokers to the industry. In the fiscal year 2025, these channels were responsible for generating over ₹61,000 crore, accounting for approximately 60% of the new business premium for private insurers. These crucial distribution networks are also instrumental in facilitating the sale of group credit-life cover, which is often linked to home loans, retail loans, and microfinance loans. Should commissions decline to a point where distribution is no longer financially sustainable, industry officials predict a significant drop in the sale of these vital credit protection covers.
An industry expert underscored the importance of distribution channels in reaching a wider populace, pointing out that India’s life insurance penetration stood at a mere 2.7% of GDP in FY25. This statistic highlights the undeniable role of robust distribution networks in connecting with customers who might not otherwise proactively seek out insurance products. The official further elaborated that even if premium prices remain largely unaffected, a contraction in distribution could lead to fewer individuals being covered, thereby undermining the national goal of “Insurance for All by 2047.” The implications of Irdai’s proposed commission framework extend far beyond just the profitability of insurers and distributors; they touch upon the fundamental goal of expanding financial inclusion and social security for millions across India.
