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Informist, Wednesday, Sept. 23, 2026

 

NEW DELHI – The Insurance Regulatory and Development Authority of India has proposed commission limits for insurance distributors based on the complexity of sale and service, rather than a uniform approach. In a consultation paper released Wednesday, the regulator has proposed streamlining distributor classification while encouraging the sale of products in underserved areas.

 

The segment, line of business, distribution channel, and product complexity will determine commission, with a new set of safeguards proposed to increase accountability. The proposed norms also cap insurers' management expenses. According to the consultation paper, distribution in small towns and rural areas with specified population thresholds may also carry rewards above commission limits. IRDAI sought feedback on the proposals by Oct. 25.

 

"The present distribution architecture has evolved in a manner that rewards premium collection more than consumer value, market expansion or operating efficiency... the current distribution architecture is not adequately delivering on the twin public policy objectives of enhancing policyholder welfare and expanding insurance coverage," the regulator said. "Distribution reforms have therefore become a compelling economic priority rather than merely a regulatory exercise." 

 

IRDAI's consultation paper streamlines current guidelines on distribution entities into three categories – insurance distribution entities, insurance distribution persons and market institutions. Insurance distribution entities can have specified persons and point-of-sale persons. These, along with agents and associates, would make up the category of insurance distribution persons. Finally, the proposed norms introduce market infrastructure institutions as a category to encourage the development of key digital infrastructure and enhanced use of the public insurance registry. 

 

"Entities with the same structure would have the same scope of business, obligations and regulatory framework," IRDAI said in a release. "A clearer distinction between open and closed distribution architectures would promote competition and reduce regulatory arbitrage and operational constraints."

 

The reforms also introduce enhanced disclosure requirements for insurers and large distribution entities to make distribution costs available to customers. The increased transparency will help customers make better and more informed choices, while the change in categorisation would enable more choice, IRDAI said. The consultation paper increases safeguards on bundling insurance products by prohibiting volume- or reward-linked incentives for bank and non-banking financial companies' staff. All forms of remuneration to distributors would have to be declared to the regulator, and commissions may be clawed back in cases of mis-selling, IRDAI said. 

 

In the distribution overhaul, the consultation paper also seeks to cap management expenses for life insurers at 15% of gross direct premium income within two years and 12.5% within five years. Management expenses for general insurers will be capped at 25% of gross direct premium income in two years and 20% in five years. Currently, the latter category's management expense cap is 30% of gross written premium. The first year in the glide path would be 2027-28 (Apr-Mar), the paper said.

 

To offset this, the regulator proposed reducing its fee to 0.04% from 0.05% of the premium, capped at INR 200 million annually. According to the consultation paper, this will reduce the total fee for all insurers except five and return up to INR 375 billion in premiums to the industry.

 

"The proposed reduction in EoM (expenses of management) is intended to lower the overall cost of insurance, thereby expanding the risk pool available in general insurance and enhancing returns to policyholders in life savings products," the release said. "The phased approach seeks to balance improved value and affordability for policyholders with the financial sustainability of insurers, while progressively improving cost efficiency across the sector."  End

 

Reported by Aaryan Khanna

Edited by Saji George Titus

 

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