IRDAI’s insurance distribution reforms: What changes for insurers, brokers, customers

IRDAI is looking to put a tighter lid on the cost of distributing insurance, while changing the way commissions are decided.

The proposals could affect insurers and intermediaries differently, depending on the product, distribution channel and cost of servicing customers. For some low-ticket products, lower commissions could make traditional distribution less attractive and push more sales towards digital channels.

The Insurance Regulatory and Development Authority of India (IRDAI) released its consultation paper, ‘Recalibrating Economics of Insurance Distribution’, on September 23. It proposes changes to insurers’ operating expenses, distributor commissions, disclosure requirements and the structure of insurance distribution.

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The proposal puts the cost of getting a policy to the customer at the centre of the changes. IRDAI wants insurers to bring down their Expense of Management (EoM) over a phased period and wants commissions to reflect the product being sold and the work involved in selling and servicing it.

For life insurers, the proposed EoM limit would be 15% within two years and 12.5% within five years, linked to Gross Direct Premium Income. For general insurers, the limit would move from 30% of Gross Written Premium to 20% of domestic Gross Direct Premium Income over five years.

How will commissions change?

IRDAI is proposing to move away from a uniform commission framework. The limits would take into account the insurance segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing the product.

The proposal also allows additional rewards for selling insurance in underserved areas, including rural areas, small towns and smaller cities.

Amit Goel, Director, Equirus Raghnall Insurance Broking, said the proposed EoM glide path and effort-based commission structures could push insurers and intermediaries to look more closely at acquisition costs, productivity, renewal quality and servicing efficiency.

“IRDAI’s proposed reforms mark an important shift in how we look at insurance distribution, from simply chasing premium growth to focusing on quality, efficiency and customer value,” he said.

For brokers, Goel said the changes could also bring greater focus on the value of advice and servicing.

“A good broker is not just a channel for placing a policy. Risk assessment, programme structuring, market negotiation, claims support and ongoing risk advisory are all part of the value created,” he said.

What does this mean for insurers and intermediaries?

The proposed changes could require insurers and intermediaries to reassess their cost structures, particularly where distribution involves significant operating infrastructure.

Krishnamoorthy Rao, MD & CEO, Generali Central Insurance, said the proposed rationalisation of commission structures could require intermediaries to reassess their cost models.

“It will have to be seen how they change their cost structure after accounting for the lower level of commission,” he said. The impact could be more visible in some low-ticket products.

“Lower commissions could also make low-ticket products such as personal accident and home insurance less attractive for traditional intermediaries, potentially accelerating their migration to digital platforms,” Rao said.

For insurers, the reforms could encourage greater investment in proprietary digital channels and industry platforms such as Bima Sugam, while also creating an opportunity to raise service standards, he said.

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Where does Bima Sugam fit in?

Digital infrastructure is another part of the proposed reforms. IRDAI has proposed Market Infrastructure Institutions as digital, pull-based alternatives for insurance distribution, with Bima Sugam identified as one such infrastructure.

It also proposes greater use of the Public Insurance Registry to support transparency, comparison, portability and operational efficiency.

The idea is to make it easier for customers to compare, buy and service insurance through digital channels, while reducing some of the costs involved in distribution.

IRDAI has also proposed replacing the existing distribution architecture with three broad categories: Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs). The proposed framework includes simpler registration, lower entry and capital requirements and reduced regulatory fees.

What changes for customers?

One of the more visible changes could be greater transparency around commissions.

Insurers and large distribution entities would have to disclose their commission policies and structures in a simple and accessible manner. Specified commercial policies would also carry commission disclosures, allowing customers to see the distribution costs built into pricing.

The consultation paper also proposes safeguards against compulsory bundling of insurance with other financial products and measures to address mis-selling.

These include documenting customer needs and suitability, bringing all forms of remuneration within the definition of commission and prohibiting volume-linked or reward-linked incentives for bank and NBFC staff selling insurance.

Suresh Agarwal, MD & CEO, Mahindra Manulife Insurance, said greater transparency and accountability could help improve access to insurance.

“Bridging India’s protection gap at scale will require distribution models that are more transparent, efficient and responsive to evolving customer needs,” he said.

Agarwal said linking remuneration more closely to product complexity and distribution effort, along with stronger disclosure and accountability, could help align incentives with long-term policyholder value.

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Will lower distribution costs mean lower premiums?

Not necessarily. IRDAI says the proposed reduction in EoM is intended to lower the overall cost of insurance, expand the risk pool in general insurance and enhance returns to policyholders in life savings products.

But lower distribution costs do not automatically mean lower premiums. The impact will depend on how insurers and intermediaries adjust their costs, commissions and distribution models.

Agarwal said insurers and intermediaries would need to recalibrate their operating models, technology and servicing capabilities while ensuring that greater efficiency translates into wider access, better advice and stronger customer outcomes.

Rao also pointed to the cost differences between insurers. “The framework should also recognise the structural cost differences faced by smaller insurers, so that distribution remains competitive, sustainable and inclusive,” he said.

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For brokers, the proposed changes could also mean a rethink of the traditional volume-led model. Goel said the reforms could encourage brokers to move towards a more advisory-led approach.

“The reforms can therefore encourage brokers to move from volume-led distribution to value-led advisory,” he said.

What happens next?

The proposals are still at the consultation stage. IRDAI has invited comments from insurers, intermediaries, policyholders and other stakeholders, with the deadline for submissions set at October 25, 2026.