IRDAI’s new insurance distribution model: IDE vs IDP explained, and what it means for policyholders  

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed an insurance distribution architecture that would reorganise how insurance products are sold through intermediaries. Under the proposed framework, distributors would fall into two categories — Insurance Distribution Entities (IDEs) and Insurance Distribution Persons (IDPs).

What is an IDE?

An Insurance Distribution Entity (IDE) would cover entities such as banks, NBFCs, brokers, corporate agents, composite brokers, insurance marketing firms and web aggregators.

Under the proposed framework, IDEs would have the option, but not the obligation, to adopt an open architecture. An IDE could distribute products from multiple insurers.

The proposal would also allow IDEs to sell non-insurance financial products, subject to approval under financial-sector regulations. This could give distributors another source of revenue while reducing dependence on insurance commissions.

What is an IDP?

An Insurance Distribution Person (IDP) would cover individuals or employees associated with distribution entities, including insurance agents, insurance associates and Point of Sales Persons (PoSPs).

Unlike IDEs, IDPs of insurers would remain under a closed architecture. However, an IDP could represent one life insurer, one general insurer, one health insurer and one insurer from each of the other mono-line segments, provided the products are not competing with each other.

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An IDP cannot sell competing health products from both a general insurer and a standalone health insurer. PoSPs also cannot work with multiple IDEs.

Who else could enter insurance distribution?

The proposed architecture could widen participation. Hospitals could distribute health insurance products by registering as IDEs, subject to safeguards. Non-dealer automobile garages providing repair services could sell motor insurance products by becoming associates of an insurer.

The framework also provides for Market Infrastructure Institutions (MIIs). The proposal allows more MIIs to be created by insurers.

Tighter accountability for mis-selling

The reforms also seek to strengthen accountability for mis-selling. IRDAI has proposed linking the functional identity of specified persons, salespersons and PoSPs, as well as agents and associates, to the policies they sell. Information on mis-selling could be made available through the Public Insurance Registry.

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Examples include presenting insurance as a fixed deposit or high-return investment, selling regular-premium policies as single-premium products, or failing to explain surrender values and the consequences of stopping premiums. Customer consent or a signature alone would not absolve an insurer or intermediary where an unsuitable product was sold.

IRDAI has also proposed bringing monetary and non-monetary incentives within the definition of commission. Volume-linked or reward-linked incentives for bank and NBFC employees selling insurance could be prohibited.

For consumers, the key change is not simply who sells an insurance policy, but how distributors are structured, what products they can offer and whether they can represent competing insurers. The proposals are subject to consultation and are not yet final. Their final impact will depend on the regulations issued after the process.

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