The Insurance Brokers Association of India (IBAI) has formally urged Finance Minister Nirmala Sitharaman to intervene against the Insurance Regulatory and Development Authority of India’s (IRDAI) proposed changes to insurance distribution economics. In a letter dated October 2, IBAI cautioned that the new regulations, which include caps on commissions and a reduction in insurers' overall expense limits, could severely impact employment, market competition, and policyholder options across India.
Concerns Over Job Losses and Market Impact
IBAI’s plea comes in response to IRDAI’s consultation paper, “Recalibrating Economics of Insurance Distribution,” released on September 23, with stakeholder comments due by October 25. While IBAI supports measures to combat genuine mis-selling, such as prohibiting mandatory insurance bundling with loans and strengthening suitability checks, it strongly opposes the proposed structure of over 30 product- and channel-specific commission caps and a one-third cut in insurers’ expense limits.
The association highlighted that the insurance distribution sector currently employs more than 83 lakh professionals. IBAI estimates that if the proposed expense-limit reductions are implemented, at least 10 lakh livelihoods could be at risk over a five-year period. Insurers, the association argues, might opt to cut sales, servicing, and claims-related staff rather than absorb the reductions solely through efficiency gains.
Furthermore, IBAI warned that stringent commission caps could inadvertently lead to alternative payment arrangements, potentially reviving compliance issues that were addressed by the 2023 reforms. The association cited a past instance involving ₹824 crore of bogus GST input credit across 15 insurers before the 2023 changes as a cautionary example.
Will Policyholders Benefit?
A central point of contention for IBAI is whether reduced distribution costs will actually translate into lower insurance premiums for consumers. The association noted that IRDAI's consultation paper does not outline a clear mechanism to ensure that any savings from lower commissions and expenses are passed on to policyholders.
IBAI emphasized the critical role independent brokers play, acting on behalf of customers to compare products, negotiate coverage, and assist with claims, thereby ensuring informed choices.
Proposed Alternatives and Call for Dialogue
Instead of imposing rigid commission caps, IBAI has proposed retaining the existing 2023 expense-of-management framework, with tighter calculation rules if deemed necessary. The association also suggested that in cases where insurance is force-sold and claims ratios remain below a prescribed level, insurers could be mandated to refund premiums or reduce renewal premiums.
IBAI has requested a meeting with Finance Minister Sitharaman before the October 25 deadline for stakeholder feedback. The association reiterated that its objection is not to insurance sector reform itself, but to reforms that it believes may not directly benefit policyholders.