IRDAI Proposes Changes to Insurance Commissions and Expense Limits

What IRDAI Has Proposed

The paper, titled "Recalibrating Economics of Insurance Distribution," covers five areas:

• Distribution structure: How insurers and intermediaries would be classified under the proposed framework.

• Expense limits: How much insurers can spend on running their business.

• Commissions: Proposed limits for agents, brokers and other distribution entities.

• Market conduct: Proposed measures relating to mis-selling and forced bundling.

• Digital practices: Proposed restrictions on manipulative website design.

IRDAI says the proposals are intended to lower the cost of insurance for policyholders, improve transparency and align incentives with policyholder value.

Why IRDAI Is Proposing Changes to Insurance Distribution

IRDAI has highlighted motor insurance as an area where distributor payouts have grown faster than premiums.

These figures form part of the basis for the proposed changes to distribution costs. IRDAI has proposed a more differentiated commission structure based on the product, distribution channel and effort involved in selling and servicing the policy.

A New Three-Tier Distribution Structure

IRDAI has proposed restructuring the existing intermediary architecture into three broad categories. The proposed framework is intended to make it easier for entrepreneurs, including those in smaller markets, to participate in insurance distribution.

The three categories are:

• Insurance Distribution Entities (IDEs): Firms and companies that sell policies.

• Insurance Distribution Persons (IDPs): Individual agents and salespeople.

• Market Infrastructure Institutions (MIIs): Platforms that support the distribution ecosystem.

The proposed architecture follows the principle of “same structure, same functions, same norms”. This means entities with the same structure would have the same scope of business, obligations and regulatory framework.

Proposed Expense of Management Limits

The proposed EoM changes are intended to reduce the overall cost of insurance. IRDAI says lower costs could expand the risk pool in general insurance and improve returns to policyholders in life insurance savings products. The regulator has also proposed reducing the regulatory fee charged to insurers from 0.05% to 0.04% of premium, subject to a maximum of ₹20 crore.

• Life insurers: EoM would move to 15% of gross direct premium income (GDPI) within 2 years, then 12.5% within 5 years.

• Life insurers already below the benchmark in FY25: EoM would move to 10% within 5 years.

• General insurers: The benchmark would shift from gross written premium (GWP) to domestic GDPI, moving from roughly 30% today to 25% within 2 years and 20% within 5 years.

Proposed Commission Limits, Product by Product

Under the proposed framework, commission limits would depend on the product, the channel and the effort involved in selling and servicing it.

• Individual life plans up to 5 years: Proposed first-year commission limit of 6.25% for agents and 5% for other distribution entities.

• Life plans of 10 years or more: Proposed first-year commission limit of 25% for agents and 20% for distribution entities.

• Individual non-linked and linked products generally: Proposed commission limits of 5% to 20% for distribution entities, depending on the premium payment term, with agent limits ranging from 6.25% to 25%.

• Individual health policies: Proposed first-year limit of 15% for distribution entities, 20% for agents and associates, and 5% for hospitals.

• Motor third-party insurance for new vehicles: Proposed nil commission for distribution entities and 2.5% for agents and associates.

• Motor own-damage, personal accident and legal liability on new vehicles: Proposed limits of 5% for intermediaries and 10% for agents and associates.

Bank and NBFC employees would also be barred from volume-linked rewards and non-monetary perks, such as sponsored contest trips, for pushing insurance sales.

The proposed commission structure also provides for additional rewards for business sourced from underserved markets. Business sourced from towns and cities below 10 lakh population, excluding the smaller-town category, could qualify for an additional 10% of the applicable commission limit. Business sourced from towns below 50,000 population and rural areas could qualify for an additional 20%.

Commission Disclosure and Cost Transparency

The proposed reforms also seek to make distribution costs more transparent.

Insurers and large distribution entities would have to disclose their commission policies and structures in a simple and accessible manner. Commercial insurance policies with a sum insured above ₹50 crore would also carry commission disclosures.

IRDAI has also proposed cost audits and safeguards against indirect payments to improve accountability for actual distribution costs. The proposal includes cost-audit requirements for insurers and specified distribution entities based on their size and insurance-related revenue.

A Bigger Role for Digital Insurance Infrastructure

The proposed reforms also seek to change how customers access and buy insurance.

IRDAI has proposed Market Infrastructure Institutions (MIIs) as digital, pull-based alternatives for insurance distribution, with Bima Sugam identified as one such infrastructure.

The paper also envisages greater use of the Public Insurance Registry (PIR) to support transparency, comparison, portability and operational efficiency. These digital channels are intended to give customers greater access to insurance information and make it easier to compare and transact across insurers.

Targeting Mis-selling and Dark Patterns

The proposed reforms also address practices that can lead customers to buy insurance they do not need or fully understand. The measures focus on product suitability, misleading digital sales practices and insurance being bundled with loans or other financial products without proper customer choice.

• Suitability as an obligation: Insurers would have to document why a product fits a customer's needs before selling specified life insurance products, with an audit trail to support it.

• Ban on dark patterns: Deceptive website designs, such as forcing users to submit personal details before they can view basic policy information, would be prohibited under the proposed framework.

• No compulsory bundling: Insurance would not be permitted to be made a condition of getting a loan.

The proposal also includes commission claw-back in cases of mis-selling and linking the identity of the individual with the policy sold. IRDAI has proposed making information on mis-selling incidents available in the public domain and tracking dark patterns.

What Happens Next

IRDAI has opened the paper for public feedback until 25 October 2026. Distributors, brokers, insurers and other stakeholders can submit comments on the problems identified, the proposed strategic objectives, reform measures and their implementation.

For now, this remains a proposal, not a notified regulation. The final commission limits, EoM glide paths, distributor categories and implementation timelines will depend on the outcome of the consultation and subsequent regulatory process.

Source: IRDAI, "Recalibrating Economics of Insurance Distribution" consultation paper

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