Insurance commissions grew up to 6 times faster than premiums: What IRDAI wants to change

Insurance distribution costs have risen sharply faster than the premiums generated through some channels, prompting the Insurance Regulatory and Development Authority of India (IRDAI) to propose tighter controls on commissions paid to agents, brokers, banks and other intermediaries. The regulator’s proposed overhaul could reshape how insurers acquire customers and how distributors are paid.

According to Zerodha, the data cited by IRDAI shows distributor remuneration growing roughly four to five times faster than premiums between FY23 and FY25. The gap is particularly visible in life insurance corporate-agent and general-insurance broker channels.

Distribution payouts rise much faster than premiums

For life corporate agents, premium growth was 28% between FY23 and FY25, while distribution remuneration increased 125%.

The divergence was even wider for general-insurance brokers. Premiums grew 37%, compared with a 173% increase in distribution remuneration.

This means remuneration grew roughly 4.5 times as fast as premiums in the life corporate-agent segment and nearly 4.7 times as fast in general-insurance broking.

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At the same time, the number of individual life insurance policies has remained broadly stagnant over the period shown in IRDAI’s analysis, raising questions about whether the increase in distribution spending has translated into a proportionate expansion in insurance coverage.

What is IRDAI proposing?

IRDAI wants to bring back product-level commission caps while also tightening overall limits on insurers’ Expenses of Management (EOM).

Before 2023, the regulator prescribed commission limits for different products and sales channels. Those detailed caps were subsequently removed, giving insurers greater flexibility in determining distributor payouts, although overall EOM limits continued to apply.

The proposed framework would once again differentiate commissions according to the product and distribution channel, with lower payouts proposed where selling a product requires less effort.

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The scale of the proposed change can be seen in term insurance. Individual term-life first-year commissions currently averaged 51%, with some reaching 81%. The proposed first-year cap for multi-year pure-term policies is 25% for banks and brokers and 30% for agents.

Insurance commission overhaul: Key numbers and proposed changes

Parameter	What the data/proposal shows	Why it matters
Life corporate agents	Premiums grew 28%, while distribution remuneration rose 125%	Remuneration grew more than four times as fast as premiums
General insurance brokers	Premiums grew 37%, while remuneration increased 173%	Distribution payouts grew nearly five times as fast as premiums
Individual life policies	Policy numbers remained broadly stagnant over the period analysed	Higher distribution spending has not produced a proportionate increase in individual policies
Term insurance commissions	First-year commissions averaged 51%, with some reaching 81%	Shows the scale of commissions IRDAI wants to regulate
Proposed term cap	First-year cap of 25% for banks/brokers and 30% for agents for multi-year pure-term policies	Could significantly reduce payouts on some term products
Commission framework	IRDAI proposes bringing back product- and channel-specific caps	Insurers would have less freedom to determine commissions
Overall expenses	IRDAI also proposes tighter Expenses of Management (EOM) limits	Could put additional pressure on insurers’ distribution spending
Potential insurer impact	Lower commissions could reduce customer-acquisition costs	Insurers could retain more value from each policy
Potential customer impact	Lower distribution costs do not automatically mean lower premiums	Savings could instead support insurer margins
Current status	The proposals are under consultation	Final rules could differ from the draft

Why does the regulator want to intervene?

IRDAI’s argument is that insurers are spending increasingly more on distribution without seeing a corresponding increase in the number of people covered.

The regulator also points to differences in bargaining power. Banks, lenders and vehicle dealers already have customers, allowing insurers to compete for access through commissions. In such cases, the payout may reflect the distributor’s negotiating power rather than simply the effort involved in selling the policy.

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What happens next?

Lower commissions could reduce insurers’ customer-acquisition costs and potentially improve their profitability. But the impact on customers is less certain.

Distributors could reduce sales and marketing costs, automate operations or focus on products that continue to offer higher remuneration. Banks and NBFCs could also see lower insurance-related fee income.

For policyholders, lower distribution costs do not automatically guarantee lower premiums. Insurers could instead retain part of the savings, while claims costs, competition and product design will also determine pricing.

The proposals are currently open for consultation, and the final rules could differ from the draft.

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