Insurance brokers urge FM Nirmala Sitharaman to halt proposed commission caps, seek impact assessment

The Insurance Brokers Association of India (IBAI) has urged Finance Minister Nirmala Sitharaman to intervene in the Insurance Regulatory and Development Authority of India’s (IRDAI) proposed changes to insurance distribution economics, warning that the measures could hurt jobs, competition and policyholder choice.

In a letter dated October 2, IBAI asked the Finance Minister not to notify regulations on commission and expense limits without a published impact assessment, and sought continuation of the existing 2023 framework until its scheduled review in 2028.

The association's intervention comes after IRDAI released its consultation paper, “Recalibrating Economics of Insurance Distribution,” on September 23, with stakeholder comments invited until October 25. IBAI said it supports measures aimed at genuine mis-selling, including a prohibition on compulsory bundling of insurance with loans and stronger suitability requirements. However, it has opposed the proposed structure of more than 30 commission caps across products and channels, along with a one-third reduction in insurers’ overall expense limits.

IBAI warns of job losses

According to IBAI, insurance distribution currently employs more than 83 lakh professionals, including individual agents, micro-insurance agents, point-of-sale persons and other intermediaries.

The association estimates that at least 10 lakh livelihoods could be at risk over a five-year period if the proposed expense-limit reduction is implemented. It said insurers could respond by cutting sales, servicing and claims-related staff rather than absorbing the reduction entirely through efficiency gains.

IBAI also warned that tighter product- and channel-specific commission caps could encourage alternative payment arrangements and potentially revive compliance problems that it says were addressed by the 2023 reforms. It cited ₹824 crore of bogus GST input credit involving 15 insurers before 2023 as an example.

Brokers question whether policyholders will benefit

A central concern raised by IBAI is that lower distribution costs may not automatically translate into lower insurance premiums for customers. The association said the consultation paper does not establish a mechanism to ensure that savings from lower commissions and expenses are passed on to policyholders.

It also argued that independent brokers play an important role because they are appointed by customers to compare products, negotiate coverage and assist with claims.

IBAI has proposed retaining the 2023 expense-of-management framework, with tighter calculation rules if required, rather than imposing hard commission caps. It also suggested that where insurance is force-sold and claims ratios remain below a prescribed level, insurers could be required to refund premiums or reduce renewal premiums.

The association has requested a meeting with Sitharaman before the October 25 deadline for stakeholder feedback and reiterated that its objection is not to insurance-sector reform, but to reforms that it believes may not directly benefit policyholders.