IRDAI has proposed changes to insurance commissions and distribution costs through its consultation paper, Recalibrating Economics of Insurance Distribution, released on 23 September 2026. The proposals could change how insurers and intermediaries sell policies, particularly lower-premium products in smaller towns. Their impact will depend on the final rules, the allowances for underserved markets and how distributors adapt.
What Is IRDAI Proposing to Change in Insurance Commissions?
IRDAI’s proposal covers commission limits, insurers’ operating expenses and the rules governing insurance distribution. The aim is to change how distribution costs and incentives are managed. The commission proposals form part of a wider review of insurance distribution, which also covers distribution structures, digital infrastructure and measures to strengthen customer protection.
The proposals include:
| Proposed change | What it means |
|---|---|
| Commission limits | Set product-specific and distributor-specific limits on remuneration. |
| Expenses of Management (EoM) | Reduce insurers’ permitted management expenses through a phased framework. |
| Underserved markets | Allow additional commission headroom for eligible business sourced from smaller towns and rural areas. |
| Sales incentives | Introduce restrictions on certain volume-linked incentives and non-monetary rewards. |
| Disclosure and conduct | Strengthen transparency and safeguards against mis-selling. |
The proposal also sets out additional commission limits for eligible business sourced from underserved locations:
Towns and cities with populations below 10 lakh, excluding Category II: An additional commission limit equal to 10% of the applicable limit on the first-year premium is proposed for eligible individual policies.
Towns with populations below 50,000 and all rural areas: An additional commission limit equal to 20% of the applicable limit on the first-year premium is proposed for eligible individual policies.
These are proposed allowances, not additional commission rates that apply automatically to every policy sold in these locations.
The consultation process is still under way. IRDAI invited feedback, so the final requirements could differ from the proposals.
Could Lower Commissions Affect Insurance Distribution in Smaller Towns?
The effect on local insurance distribution will depend partly on the cost of acquiring and servicing customers. Selling a policy involves more than issuing the document. Customers can need help comparing plans, understanding exclusions, submitting documents, renewing policies and navigating claims.
For lower-premium products, the amount earned from a sale can be limited even when the time spent assisting the customer remains substantial.
What could change for distributors?
Lower earnings per policy: A reduced commission limit could affect the revenue generated from certain products.
Higher pressure on operating costs: Travel, communication, employee costs and customer support still need to be covered.
Changes in product focus: Distributors could reconsider which products and customer segments they prioritise.
Changes in local servicing: Some distributors could revise their operating models if the revenue from a segment no longer covers the cost of serving it.
Note: These are possible responses, not confirmed outcomes. The impact will vary by distributor, product, sales volume and operating model.
Will the allowances for underserved markets help?
The proposed additional commission headroom is intended to account for business sourced from smaller towns and rural areas. Its effect will depend on the final eligibility criteria and whether the additional remuneration is sufficient to support customer acquisition and servicing costs. The allowances could help maintain distribution in these areas, but their actual impact will become clearer only after the rules are finalised and implemented.
Could the Proposed Changes Make Insurance More Affordable?
Lower distribution costs could create scope for insurers to reduce premiums. However, a reduction in commissions does not automatically translate into a lower price for policyholders.
Insurance premiums also account for expected claims, operating expenses and other costs associated with providing cover. The effect on customers will depend on how insurers respond to changes in their distribution expenses.
Three possible outcomes need to be considered:
Lower premiums: Insurers could pass on some of the savings from lower distribution costs.
No immediate change in premiums: Savings could be offset by other expenses or changes in the insurer’s cost structure.
Changes in distribution services: Distributors could alter how they acquire and service customers to manage lower remuneration.
Can Digital Insurance Platforms Help Bridge the Gap?
Digital insurance platforms can reduce the time and administrative effort involved in selling and servicing policies. They can also help customers compare available plans and complete purchases online. However, digital access does not remove every barrier faced by first-time buyers.
Where digital platforms can help
Policy comparison: Customers can review premiums, coverage and exclusions across available plans.
Online documentation: Digital processes can reduce paperwork and speed up policy issuance.
Renewals and communication: Automated reminders and online servicing can make routine tasks easier.
Assisted digital sales: Agents can use online tools for comparison and documentation while helping customers understand policy terms.
Why local assistance still matters
Customers buying insurance for the first time could need explanations of waiting periods, exclusions, policy limits and claims procedures. They might also need help resolving documentation issues or contacting the insurer.
An assisted digital model combines online processes with personal guidance. It could help distributors manage their costs while retaining support for customers who are not comfortable making insurance decisions independently.
What Could the Changes Mean for Insurance Buyers?
The effect of the proposed commission framework will vary across locations, products and distribution channels.
| Area | Possible impact on buyers |
|---|---|
| Access to local advisors | Changes in distributor earnings could affect the availability of face-to-face guidance. |
| Insurance premiums | Lower distribution costs could create scope for lower prices, but reductions are not guaranteed. |
| Policy selection | Clearer disclosures and stronger safeguards could help customers understand their options. |
| Online purchases | Digital platforms could make comparison and policy issuance more accessible. |
| Rural distribution | Additional commission allowances could support eligible business in underserved areas. |
| Customer servicing | The availability of help with renewals, documentation and claims will remain relevant to the buying experience. |
For buyers, the outcome will depend on more than the commission paid to a distributor. Premiums, suitable coverage, clear policy terms and access to assistance all influence the value of a policy.
Conclusion
IRDAI’s proposed commission changes could alter the economics of insurance distribution, including the cost of serving customers in smaller towns. Lower distribution expenses could create scope for changes in pricing, while additional allowances for underserved markets could support local distribution. Neither lower premiums nor continued access to personal guidance is guaranteed.
The final framework will determine how these measures work in practice. Its impact on small-town India will depend on how insurers and intermediaries adjust their business models while maintaining access to suitable insurance and customer support.
Frequently Asked Questions
Which intermediaries could be affected by IRDAI’s proposed commission caps?
The proposed framework covers multiple distribution channels, including individual agents, insurance brokers, banks, NBFCs and online insurance intermediaries. The applicable commission limits would vary by insurance product and distributor category.
Will IRDAI’s proposed commission caps apply to insurance renewals?
Yes. The proposal includes separate limits for renewal commissions across relevant insurance categories. The applicable limits depend on the product and distribution channel, with the proposed life insurance framework also changing the balance between first-year and renewal payouts.
Will IRDAI’s proposed rules stop banks from selling insurance with loans?
The proposal seeks to prevent insurance from being made compulsory as a condition of loan approval. It does not amount to a blanket ban on banks or NBFCs distributing insurance products.
When could IRDAI’s proposed insurance commission caps take effect?
A final implementation date has not been notified. Reports in October 2026 identified 1 January and 1 April 2027 as dates under consideration. IRDAI has also indicated that a reasonable transition period could be considered after reviewing stakeholder feedback.
Are IRDAI’s proposed commission changes final?
No. The changes were outlined in a consultation paper released on 23 September 2026. The final requirements will depend on the outcome of the consultation and the regulations subsequently notified by IRDAI.
