IRDAI Proposes Sweeping Changes to Insurance Distribution
The Insurance Regulatory and Development Authority of India (IRDAI) has initiated a significant overhaul of the country's insurance distribution framework. Through its consultation paper, 'Recalibrating Economics of Insurance Distribution,' released on September 23, the regulator proposes fundamental changes to insurers' operating expenses, distributor commissions, disclosure requirements, and the overall structure of insurance distribution.
At the core of these reforms is a drive to reduce the cost of delivering insurance to customers and enhance efficiency across the sector. The proposals are expected to reshape the economic models for insurers and intermediaries, potentially leading to greater transparency and a shift towards digital platforms.
New Limits on Expense of Management (EoM) and Commissions
A key aspect of the IRDAI's proposal is a phased reduction in the Expense of Management (EoM) limits for insurers. Life insurers would see their EoM capped at 15% of Gross Direct Premium Income within two years, further decreasing to 12.5% within five years. For general insurers, the limit is proposed to move from 30% of Gross Written Premium to 20% of domestic Gross Direct Premium Income over five years.
The commission framework is also set for a major transformation. IRDAI plans to move away from a uniform commission structure, instead linking limits to the insurance segment, line of business, distribution channel, product complexity, and the effort involved in selling and servicing. The proposal also includes provisions for additional rewards for selling insurance in underserved areas, such as rural regions and smaller towns.
Impact on Insurers and Intermediaries
These proposed changes necessitate a critical reassessment of cost structures for both insurers and intermediaries. Amit Goel, Director at Equirus Raghnall Insurance Broking, noted that the EoM glide path and effort-based commissions would compel a closer look at acquisition costs, productivity, and servicing efficiency. He emphasized that brokers would need to focus more on the value of advice, risk assessment, and claims support, rather than just policy placement.
Krishnamoorthy Rao, MD & CEO of Generali Central Insurance, highlighted that the rationalization of commission structures could push intermediaries to adjust their cost models. He suggested that lower commissions might make low-ticket products, like personal accident and home insurance, less attractive for traditional channels, accelerating their migration to digital platforms. Insurers, in turn, may increase investment in proprietary digital channels and industry platforms like Bima Sugam.
Digital Infrastructure and Customer Transparency
The reforms also prioritize digital infrastructure. IRDAI has identified Market Infrastructure Institutions (MIIs) like Bima Sugam as digital, pull-based alternatives for distribution. The Public Insurance Registry is also slated for greater use to bolster transparency, comparison, portability, and operational efficiency, aiming to simplify the comparison, purchase, and servicing of insurance digitally.
For customers, a significant change will be enhanced transparency regarding commissions. Insurers and large distribution entities will be required to disclose their commission policies and structures clearly. Specified commercial policies will also include commission disclosures, allowing customers to see the distribution costs embedded in pricing. Additionally, the paper proposes safeguards against compulsory bundling of insurance with other financial products and measures to curb mis-selling, including documenting customer needs and prohibiting volume-linked incentives for bank and NBFC staff.
Will Premiums Decrease?
While the reduction in EoM is intended to lower the overall cost of insurance and enhance policyholder returns for life savings products, lower distribution costs do not automatically translate into lower premiums. The ultimate impact will depend on how insurers and intermediaries adapt their cost structures, commissions, and distribution models.
Suresh Agarwal, MD & CEO of Mahindra Manulife Insurance, believes that greater transparency and accountability will improve access to insurance, aligning incentives with long-term policyholder value. However, Rao cautioned that the framework should also acknowledge structural cost differences faced by smaller insurers to ensure competitive, sustainable, and inclusive distribution.
Next Steps in the Reform Process
These proposals are currently in the consultation phase. IRDAI has invited comments from all stakeholders, including insurers, intermediaries, and policyholders, with the deadline for submissions set at October 25, 2026. The industry awaits the final shape of these reforms, which promise to significantly transform India's insurance landscape.