₹800 premium, ₹40 commission: Why low-ticket insurance could become the biggest casualty of new rules

A proposed overhaul of insurance distribution rules could significantly change the economics of selling low-premium policies, with industry players warning that sharply lower commissions may make some products less attractive for distributors. The debate is particularly relevant for two-wheeler insurance, where distribution costs and the viability of Point of Sales Person (PoSP) networks remain important considerations.

₹800 premium could mean just ₹40 commission

InsuranceDekho COO and Co-Founder Indraneel Chatterjee highlighted the issue using the example of a two-wheeler own-damage policy with a premium of ₹800. At a proposed 5% commission, the distribution entity would receive only ₹40, before accounting for the economics of the PoSP.

“At such levels, it could become difficult to sustain a distribution network for lower-value policies, potentially making this segment less attractive for those on the ground,” Chatterjee said.

He also warned that the impact could extend to insurance penetration. Chatterjee said almost 60% of two-wheelers are already uninsured, and argued that if commissions on third-party insurance fall sharply, the incentive to distribute these policies could weaken further.

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IRDAI proposes tighter commission caps

The concern comes as the Insurance Regulatory and Development Authority of India (IRDAI) has proposed tighter commission limits in its consultation paper on ‘Recalibrating Economics of Insurance Distribution’. Motilal Oswal noted that the proposals would bring back hard commission caps after they were removed under the 2023 Expenses of Management framework.

For motor insurance, the proposed framework includes a 5% cap for motor own-damage/PA/LL products for Insurance Distribution Entities (IDEs) and a 10% cap for agents or associates. For new-vehicle third-party insurance, the proposed IDE commission is nil, while the agent/associate cap is 2.5%.

Insurtechs may have to move beyond commissions

Hanut Mehta, CEO of BimaPay, said the changes could fundamentally alter how insurance is distributed, particularly online.

“These reforms will separate insurtech models built on commissions from those built on customer value,” he said.

According to Mehta, market infrastructure institutions, including Bima Sugam, along with standardised product information and restrictions on dark patterns, could shift insurance buying from sellers pushing policies towards customers choosing policies on more neutral platforms.

He said the immediate pressure would fall on platforms dependent on high first-year commissions, but argued that new opportunities could emerge around payments, renewals, servicing, policy management and claims support.

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NBFCs could also see fee-income pressure

Capitalmind CEO Deepak Shenoy said the proposals cap insurance commissions as a percentage, spread payouts across policy terms and reduce the role of large distribution intermediaries.

“Good for the future though it will hurt some of the players today,” Shenoy said, describing the proposals as a move towards regulating commissions and expenses more closely with other financial products.

The impact is also likely to extend to NBFCs. Jefferies estimates that the proposed norms could result in 50–66% commission cuts from FY28 onwards, potentially affecting NBFCs that derive part of their fee income from insurance distribution.

The consultation therefore raises a key question for the insurance industry: can lower distribution costs be achieved without making low-value policies commercially unattractive to the agents and PoSPs needed to sell them?

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