Insurance commission overhaul: IRDAI's proposal can boost customer trust, curb mis-selling: Experts
The Insurance Regulatory and Development Authority of India (IRDAI) is considering a major overhaul of insurance distributor commissions by replacing large upfront payouts with staggered payments over the life of a policy. The proposed reforms aim to curb mis-selling, improve customer outcomes and align India's insurance distribution framework with global practices.
- Jul 9, 2026,
- Updated Jul 9, 2026 8:15 AM IST
India's insurance regulator IRDAI is reportedly working on a comprehensive reform of the insurance distribution ecosystem that could fundamentally change how agents, brokers and other intermediaries are compensated.
According to sources familiar with the discussions, the Insurance Regulatory and Development Authority of India (IRDAI) plans to propose that commissions be paid throughout the tenure of an insurance policy instead of being disbursed largely upfront. The proposal is part of a broader review of distribution practices aimed at reducing mis-selling and lowering high distribution costs in one of the world's fastest-growing insurance markets.
IRDAI Chairman Ajay Seth recently said the regulator is preparing a consultation paper on distribution reforms, which is expected to be released by the end of July.
Why the regulator wants a change
Under the current framework, distributors can earn commissions of up to 40% of premiums on certain life and health insurance products, with a substantial portion paid at the time of sale.
MUST READ: Surat, Hyderabad outpace metros as Tier-3 India powers health insurance boom
The regulator believes this structure may encourage intermediaries to prioritise sales volumes over customer suitability, resulting in instances of mis-selling or policy replacements that may not necessarily benefit policyholders.
By spreading commission payments across the policy tenure, IRDAI aims to incentivise long-term customer servicing, improve policy persistency and strengthen consumer trust in insurance products. The proposed framework would also bring India's commission structure closer to those followed in developed markets such as the United States, the United Kingdom and several European countries.
New remuneration model under consideration
Apart from staggered commissions, IRDAI is also evaluating a remuneration model that links distributor earnings to the effort involved in selling and servicing a policy.
MUST READ: 51% of Gen Z invest but delay buying health insurance, leaving many financially vulnerable: Report
Under the proposed approach, agents who provide personalised financial advice, assist customers with documentation and continue supporting them during claims could receive higher commissions than distributors such as banks that primarily sell insurance as an add-on product.
The regulator is also considering product-wise commission caps based on the complexity and tenure of insurance products, along with stricter disclosure requirements for agents, brokers and other intermediaries to improve transparency.
Customer-centric approach
Kulin Shah, Co-founder and COO of Onsurity, said the proposed reforms signal a broader shift in the insurance industry's incentive structure.
"The reforms suggested indicate a larger change in the insurance landscape in terms of changing the system of incentivization from gaining customers to providing them value through proper treatment. Trust plays an important role in the insurance ecosystem as insurance penetration increases because of improved trust based on offering necessary transparent advice, quality products, and helpful post-sale service," he said.
Shah added that insurance should be viewed as a long-term financial protection tool rather than a one-time transaction. He also stressed that regulators should maintain a balance between consumer protection and ensuring a fair ecosystem for different types of intermediaries.
"The transition has to be digital-led because digital solutions and platforms will play a crucial role in education, simplification, disclosures and servicing, helping customers make informed decisions," he said.
Arun Ramamurthy, Co-founder of Staywell.Health, also welcomed the proposal, saying staggered commissions would shift the focus from one-time sales to long-term customer relationships.
MUST READ: Your life insurance may not go to your family if you have outstanding loans. Here's why
"Linking intermediary compensation with the long-term performance and continuity of policies should reduce mis-selling and improve the quality of advice provided to customers," he said.
According to Ramamurthy, stronger disclosure norms and customer-centric incentives could enhance consumer confidence and reinforce insurance as a long-term financial safety net rather than merely a sales-driven product.
(With Reuters inputs)
India's insurance regulator IRDAI is reportedly working on a comprehensive reform of the insurance distribution ecosystem that could fundamentally change how agents, brokers and other intermediaries are compensated.
According to sources familiar with the discussions, the Insurance Regulatory and Development Authority of India (IRDAI) plans to propose that commissions be paid throughout the tenure of an insurance policy instead of being disbursed largely upfront. The proposal is part of a broader review of distribution practices aimed at reducing mis-selling and lowering high distribution costs in one of the world's fastest-growing insurance markets.
IRDAI Chairman Ajay Seth recently said the regulator is preparing a consultation paper on distribution reforms, which is expected to be released by the end of July.
Why the regulator wants a change
Under the current framework, distributors can earn commissions of up to 40% of premiums on certain life and health insurance products, with a substantial portion paid at the time of sale.
MUST READ: Surat, Hyderabad outpace metros as Tier-3 India powers health insurance boom
The regulator believes this structure may encourage intermediaries to prioritise sales volumes over customer suitability, resulting in instances of mis-selling or policy replacements that may not necessarily benefit policyholders.
By spreading commission payments across the policy tenure, IRDAI aims to incentivise long-term customer servicing, improve policy persistency and strengthen consumer trust in insurance products. The proposed framework would also bring India's commission structure closer to those followed in developed markets such as the United States, the United Kingdom and several European countries.
New remuneration model under consideration
Apart from staggered commissions, IRDAI is also evaluating a remuneration model that links distributor earnings to the effort involved in selling and servicing a policy.
MUST READ: 51% of Gen Z invest but delay buying health insurance, leaving many financially vulnerable: Report
Under the proposed approach, agents who provide personalised financial advice, assist customers with documentation and continue supporting them during claims could receive higher commissions than distributors such as banks that primarily sell insurance as an add-on product.
The regulator is also considering product-wise commission caps based on the complexity and tenure of insurance products, along with stricter disclosure requirements for agents, brokers and other intermediaries to improve transparency.
Customer-centric approach
Kulin Shah, Co-founder and COO of Onsurity, said the proposed reforms signal a broader shift in the insurance industry's incentive structure.
"The reforms suggested indicate a larger change in the insurance landscape in terms of changing the system of incentivization from gaining customers to providing them value through proper treatment. Trust plays an important role in the insurance ecosystem as insurance penetration increases because of improved trust based on offering necessary transparent advice, quality products, and helpful post-sale service," he said.
Shah added that insurance should be viewed as a long-term financial protection tool rather than a one-time transaction. He also stressed that regulators should maintain a balance between consumer protection and ensuring a fair ecosystem for different types of intermediaries.
"The transition has to be digital-led because digital solutions and platforms will play a crucial role in education, simplification, disclosures and servicing, helping customers make informed decisions," he said.
Arun Ramamurthy, Co-founder of Staywell.Health, also welcomed the proposal, saying staggered commissions would shift the focus from one-time sales to long-term customer relationships.
MUST READ: Your life insurance may not go to your family if you have outstanding loans. Here's why
"Linking intermediary compensation with the long-term performance and continuity of policies should reduce mis-selling and improve the quality of advice provided to customers," he said.
According to Ramamurthy, stronger disclosure norms and customer-centric incentives could enhance consumer confidence and reinforce insurance as a long-term financial safety net rather than merely a sales-driven product.
(With Reuters inputs)