Insurance commissions vs premiums: Why distributor payouts are rising much faster

Insurance distribution costs have been rising sharply faster than the premiums generated through some channels, according to data cited by The Daily Brief by Zerodha. The gap is particularly striking among life corporate agents and general insurance brokers, where distributor remuneration has grown several times faster than premium collections between FY23 and FY25.

For life corporate agents, premium growth stood at 28%, while distribution remuneration rose 125%. In general insurance, premiums increased 37%, but remuneration paid to brokers jumped 173%.

The divergence is at the centre of the Insurance Regulatory and Development Authority of India’s (IRDAI) proposed overhaul of insurance commissions.

Why is the gap widening?

Insurance distributors—including agents, brokers, banks and other intermediaries—are paid to acquire customers and, in some cases, service policies. Insurance is often considered a “push product”, meaning customers may need explanation and persuasion before purchasing cover.

However, IRDAI’s data indicates that the amount being paid to distributors has expanded much faster than the premiums they generate in some channels.

According to Zerodha, IRDAI found that distributor payments across the channels it studied grew roughly four to five times as fast as premiums between FY23 and FY25. The regulator also noted that the number of individual life insurance policies has remained broadly stagnant over the period analysed.

This has raised questions about whether the rising distribution expenditure is translating into a corresponding expansion in insurance coverage.

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What the insurance commission data means

What is happening?	Data / proposal	Why it matters
Distributor payouts are outpacing premiums	Life corporate-agent remuneration: +125% vs premium growth of +28%	Distribution costs are rising much faster than the business generated
The gap is wider in general insurance	Broker remuneration: +173% vs premium growth of +37%	Brokers’ payouts have expanded significantly faster than premiums
Insurance coverage has not risen proportionately	Individual life-policy numbers remained broadly stagnant	Higher distribution spending has not translated into a comparable rise in policy numbers
IRDAI wants more control over commissions	Product- and channel-specific caps proposed	Insurers may have less flexibility in deciding distributor payouts
Term insurance faces a major reset	Existing first-year commissions averaged 51%, with some as high as 81%	Shows the scale of commissions under the current system
Proposed term payouts are much lower	25% cap for banks/brokers; 30% for agents	Could materially reduce distributor revenue from some term policies
Insurers could save on acquisition costs	Lower commissions mean lower distribution expenses	Could improve insurer economics
Customers may not automatically get cheaper policies	Savings could be retained by insurers	Lower commissions do not guarantee lower premiums
Distribution could change	Distributors may automate operations or prioritise better-paying products	Could alter which insurance products and customers receive sales attention
The policy question	Final rules are still under consultation	The eventual impact will depend on how insurers and distributors respond

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IRDAI wants to reset the commission structure

The regulator is proposing to bring back product-level commission caps while also tightening overall Expenses of Management (EOM) limits.

Detailed product and channel-specific commission caps were removed in 2023, giving insurers greater flexibility to decide distributor payouts. IRDAI now proposes differentiated caps depending on the product and sales channel, with lower payouts where selling a product requires less effort.

The scale of the proposed change is particularly visible in term insurance. First-year commissions on individual term policies averaged 51%, with some reaching 81%. Under the proposal, the first-year cap for multi-year pure-term policies would be 25% for banks and brokers and 30% for agents.

What does this mean for insurers and distributors?

For insurers, commissions are an expense, while for distributors they are revenue. Lower payouts could therefore reduce insurers’ customer-acquisition costs but put pressure on the earnings of brokers, platforms, banks and other intermediaries.

Distributors could respond by cutting customer-acquisition costs, automating operations or focusing on products that continue to offer higher remuneration.

The impact may also differ between distribution channels. Banks and NBFCs could see lower insurance-related fee income, while individual agents may face a different degree of pressure depending on the proposed product-level caps.

Will customers benefit?

Lower distribution costs could leave insurers with more value from each policy, but this does not automatically mean lower premiums. Savings could instead improve insurer profitability. Claims costs, competition, product design and existing margins will also influence pricing.

The central question, therefore, is whether the sharp gap between premium growth and distributor remuneration reflects excessive distribution costs—or the value intermediaries provide in bringing insurance to customers. The final impact will depend on how IRDAI’s proposals are implemented and how insurers and distributors respond.

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