IRDAI’s proposed distribution overhaul: Insurance sector may see major reset; could force distributors rework business models, innovate, say analysts
PB Fintech, which operates the insurance platform Policybazaar, told analysts that it may explore getting into insurance manufacturing themselves, with their core business revenue likely to take hit if the IRDAI's proposals are implemented
- Sep 25, 2026,
- Updated Sep 25, 2026 6:21 PM IST
The insurance sector in India is set for a major reset if the changes proposed by the Insurance Regulatory and Development Authority of India (IRDAI) are to go through. The consultation paper has signalled a significant overhaul of insurance distribution, and this will have a wide-ranging impact, not just on insurance companies, but more significantly on distributors like PolicyBazaar, who may now have to rethink their business models, say analysts.
The proposals include reintroduction of hard commission caps, tightening of EoM (expense of management) framework, curbing of loan and insurance bundling among a few other things.
As Abhishek Pandya and Dnyanada Vaidya of Axis Securities note, the proposed framework marks a “material reset” in insurance distribution economics.
READ THIS: Insurance distribution under IRDAI lens: Why certified advisers can help consumers choose wisely
“Sharp cuts in commissions, particularly across credit-life, health renewals/portability and motor, alongside tighter EoM norms, could disrupt existing distribution models and weigh on near-term growth and profitability, with the impact likely to be more pronounced for insurance brokers,” the analysts noted.
The framework has proposed product as well as channel-specific commission caps. For instance, life savings products with more than 10 years premium-paying term is likely to see first-year commissions capped at 20% for insurance distribution entities and 25% for agents. Renewal commissions are capped at 3% and 5%, respectively. In health insurance, first-year commissions are proposed to be capped at 15% for institutional distributors and 20% for agents, while renewal and portability commissions set to be capped at 5% and 10%, respectively. There are commission cuts for general insurers too.
A fresh health policy typically pays an agent about Rs 15,000 today, which would fall to about Rs 3,500–3,750 under the draft, according to analysts at Motilal Oswal Financial Services.
“Most private general insurers have been paying large commissions to gain market share with vehicle dealers; thus, this may drag their market share expansion. Similarly, health insurance commission caps proposed are stricter than current payouts. While this can help insurers achieve the EoM caps, we worry about the motivation of health insurance distributors,” say analysts at Nomura. Under a tighter EoM framework, life insurers would need to bring EoM down to 15% of premium over two years, 12.5% over five years.
According to Siddharth Rajpurohit of Systematix Shares and Stocks, the proposed EoM rules are negative for most private life insurers, except SBI Life, which is already sitting close to the proposed EoM cap.
The IRDAI is also set to prohibit the bundling of insurance with loans. Importantly, mandatory commission clawbacks have been proposed in cases where mis-selling has been confirmed. There will also be restrictions on volume-linked incentives, gifts, rewards, and foreign trips for sales personnel of banks and non-banking finance companies.
There are multiple other changes proposed, including higher disclosure and audit requirements not just insurers but also for insurance distributors. IRDAI has also proposed a simpler distribution architecture with two key types of distributors – insurance distribution entities like banks, NBFCs and brokers, and insurance agents.
“IRDAI's consultation paper introduces a structural reset for the Indian insurance ecosystem by shifting towards an effort-aligned payout framework and capping product-level commissions. The intent will certainly help the policyholders, but this will also cause an immediate margin squeeze for distributors like bancassurance partners and NBFCs, etc.,” said Debashish Banerjee, Partner, Deloitte India.
DON'T MISS: Insurance commissions may fall: What IRDAI’s new distribution rules mean for policyholders
One company that has seen a massive rerating post the consultation paper is PB Fintech, which operates the insurance distribution platform Policybazaar.com. The stock hit a 52-week low of Rs 1,115.10 on Friday, September 25, 2026, in intra-day trading on the BSE.
PB Fintech plunged 36% on Thursday and was further down 4% on Friday. In an investor call on Thursday, September 24, company officials indicated that if implemented as proposed, the changes could result in a potential 30% hit to core online insurance revenue for FY2028, analysts said.
Analysts at Motilal Oswal point to three things – volumes, costs and new revenue streams – that could help offset that impact. For instance, the analysts point that Policybazaar works with its general insurance partners on a combined operating ratio model, so lower commissions should pass through to customer prices. The management expects to get back 15-20% through volume growth, they said.
The analysts pointed that the management expects potential to save 10-15% on the current cost base of Rs 3,000 crore, although concrete steps will depend on how the final regulations evolve. The company is also exploring setting up an insurance company themselves.
“We are exploring all options in terms of manufacturing, whether that be insurance or reinsurance, so we will explore those; we're at early stages of exploration of that,” an official said on the conference call.
“It becomes a little harder for me to justify not having a manufacturing entity of my own, because this somewhat takes away the trust in the fact that distributors would be rewarded for the quality of business they create. See, we have worked 18 years to create good quality business. Today, if we had created bad quality business or good quality business, if we're going to get paid exactly the same for both, to an extent, the joke is on us,” the official stated.
The Motilal Oswal analysts are expecting the stock to underperform till the final regulations are announced.
ALSO READ: IRDAI’s insurance distribution reforms: What changes for insurers, brokers, customers
Hanut Mehta, the CEO of BimaPay (a provider of insurance financing solutions), sees the proposals to lead to a fundamental change on how insurance is purchased online, with the market likely to shift over time from sellers pushing policies to customers choosing them, aided by platforms like Bima Sugam (digital public infrastructure for the insurance sector), standardised product information and a ban on dark patterns.
“The immediate impact will be on platforms whose revenue depends mainly on high first-year commissions. Their economics will tighten, and some will need to rethink their business models entirely. At the same time, a large opportunity will open up in the layers around payments, renewals, servicing, policy management and claims support. These are the areas where customers struggle most today and where the industry has invested the least,” said Mehta.
It's worth noting that these are still proposals and are up for consultation. Ashish Teni, senior specialist – insurance and reinsurance, Trilegal, says the real significance will lie in how these principles translate into the final regulatory framework, particularly in addressing IRDAI's concerns around distribution sustainability, while preserving efficiency, market choice, and commercial viability.
The insurance sector in India is set for a major reset if the changes proposed by the Insurance Regulatory and Development Authority of India (IRDAI) are to go through. The consultation paper has signalled a significant overhaul of insurance distribution, and this will have a wide-ranging impact, not just on insurance companies, but more significantly on distributors like PolicyBazaar, who may now have to rethink their business models, say analysts.
The proposals include reintroduction of hard commission caps, tightening of EoM (expense of management) framework, curbing of loan and insurance bundling among a few other things.
As Abhishek Pandya and Dnyanada Vaidya of Axis Securities note, the proposed framework marks a “material reset” in insurance distribution economics.
READ THIS: Insurance distribution under IRDAI lens: Why certified advisers can help consumers choose wisely
“Sharp cuts in commissions, particularly across credit-life, health renewals/portability and motor, alongside tighter EoM norms, could disrupt existing distribution models and weigh on near-term growth and profitability, with the impact likely to be more pronounced for insurance brokers,” the analysts noted.
The framework has proposed product as well as channel-specific commission caps. For instance, life savings products with more than 10 years premium-paying term is likely to see first-year commissions capped at 20% for insurance distribution entities and 25% for agents. Renewal commissions are capped at 3% and 5%, respectively. In health insurance, first-year commissions are proposed to be capped at 15% for institutional distributors and 20% for agents, while renewal and portability commissions set to be capped at 5% and 10%, respectively. There are commission cuts for general insurers too.
A fresh health policy typically pays an agent about Rs 15,000 today, which would fall to about Rs 3,500–3,750 under the draft, according to analysts at Motilal Oswal Financial Services.
“Most private general insurers have been paying large commissions to gain market share with vehicle dealers; thus, this may drag their market share expansion. Similarly, health insurance commission caps proposed are stricter than current payouts. While this can help insurers achieve the EoM caps, we worry about the motivation of health insurance distributors,” say analysts at Nomura. Under a tighter EoM framework, life insurers would need to bring EoM down to 15% of premium over two years, 12.5% over five years.
According to Siddharth Rajpurohit of Systematix Shares and Stocks, the proposed EoM rules are negative for most private life insurers, except SBI Life, which is already sitting close to the proposed EoM cap.
The IRDAI is also set to prohibit the bundling of insurance with loans. Importantly, mandatory commission clawbacks have been proposed in cases where mis-selling has been confirmed. There will also be restrictions on volume-linked incentives, gifts, rewards, and foreign trips for sales personnel of banks and non-banking finance companies.
There are multiple other changes proposed, including higher disclosure and audit requirements not just insurers but also for insurance distributors. IRDAI has also proposed a simpler distribution architecture with two key types of distributors – insurance distribution entities like banks, NBFCs and brokers, and insurance agents.
“IRDAI's consultation paper introduces a structural reset for the Indian insurance ecosystem by shifting towards an effort-aligned payout framework and capping product-level commissions. The intent will certainly help the policyholders, but this will also cause an immediate margin squeeze for distributors like bancassurance partners and NBFCs, etc.,” said Debashish Banerjee, Partner, Deloitte India.
DON'T MISS: Insurance commissions may fall: What IRDAI’s new distribution rules mean for policyholders
One company that has seen a massive rerating post the consultation paper is PB Fintech, which operates the insurance distribution platform Policybazaar.com. The stock hit a 52-week low of Rs 1,115.10 on Friday, September 25, 2026, in intra-day trading on the BSE.
PB Fintech plunged 36% on Thursday and was further down 4% on Friday. In an investor call on Thursday, September 24, company officials indicated that if implemented as proposed, the changes could result in a potential 30% hit to core online insurance revenue for FY2028, analysts said.
Analysts at Motilal Oswal point to three things – volumes, costs and new revenue streams – that could help offset that impact. For instance, the analysts point that Policybazaar works with its general insurance partners on a combined operating ratio model, so lower commissions should pass through to customer prices. The management expects to get back 15-20% through volume growth, they said.
The analysts pointed that the management expects potential to save 10-15% on the current cost base of Rs 3,000 crore, although concrete steps will depend on how the final regulations evolve. The company is also exploring setting up an insurance company themselves.
“We are exploring all options in terms of manufacturing, whether that be insurance or reinsurance, so we will explore those; we're at early stages of exploration of that,” an official said on the conference call.
“It becomes a little harder for me to justify not having a manufacturing entity of my own, because this somewhat takes away the trust in the fact that distributors would be rewarded for the quality of business they create. See, we have worked 18 years to create good quality business. Today, if we had created bad quality business or good quality business, if we're going to get paid exactly the same for both, to an extent, the joke is on us,” the official stated.
The Motilal Oswal analysts are expecting the stock to underperform till the final regulations are announced.
ALSO READ: IRDAI’s insurance distribution reforms: What changes for insurers, brokers, customers
Hanut Mehta, the CEO of BimaPay (a provider of insurance financing solutions), sees the proposals to lead to a fundamental change on how insurance is purchased online, with the market likely to shift over time from sellers pushing policies to customers choosing them, aided by platforms like Bima Sugam (digital public infrastructure for the insurance sector), standardised product information and a ban on dark patterns.
“The immediate impact will be on platforms whose revenue depends mainly on high first-year commissions. Their economics will tighten, and some will need to rethink their business models entirely. At the same time, a large opportunity will open up in the layers around payments, renewals, servicing, policy management and claims support. These are the areas where customers struggle most today and where the industry has invested the least,” said Mehta.
It's worth noting that these are still proposals and are up for consultation. Ashish Teni, senior specialist – insurance and reinsurance, Trilegal, says the real significance will lie in how these principles translate into the final regulatory framework, particularly in addressing IRDAI's concerns around distribution sustainability, while preserving efficiency, market choice, and commercial viability.