The Insurance Brokers Association of India (IBAI) — the apex body representing the country’s 798 licensed insurance brokers — has expressed grave concern over the Irdai’s consultation paper, Recalibrating Economics of Insurance Distribution.
The association fears that implementing these rigid product- and channel-specific commission sub-caps, paired with a one-third reduction in insurers’ operational expense limits, put at least one million livelihoods at risk over the next five years. This aggressive tightening will ultimately end up harming policyholders.
The association believes that the structural reforms introduced in 2023 were robust enough to achieve the national goal of “Insurance for All by 2047”.
In April 2023, the Irdai had replaced rigid, product-by-product commission caps with a unified blanket limit on expenses of management (EoM). This granted complete boardroom freedom to insurance companies to design their own incentive structures for agents and intermediaries, provided the total expenses stayed within the statutory ceiling – 30 per cent of gross written premium for general insurers, 35 per cent for standalone health insurers and life insurers – based on different percentages for product line categories rather than a single overall limit.
While some institutional voices support the change, foreign investors remain anxious. One investor notes that while steps to contain mis-selling and curb excesses are welcome, the regulator appears to be disproportionately focussed on digital market intermediaries that were instrumental in building India’s pure term and health insurance markets.
A banker says the regulator is set to throw the baby out with the bathwater in its efforts to curb mis-selling, adding that nowhere in the world insurance is “bought” – it is always “sold” – and frequent regulatory “churn” in a nascent sector creates perpetual regulatory uncertainty.
What drove the regulator to intervene after the 2023 deregulation? Let the data speak. Following the removal of individual commission caps, the Motor Insurance premiums sourced by brokers grew by about 34 per cent, but distributor commissions skyrocketed by 259 per cent. The overall average motor commission settled at 24 per cent, with individual company average payouts spiking ranging between 13 and 50 per cent.
The retail health premiums from brokers grew by 53 per cent, while commissions surged by 118 per cent.
Distribution costs are rising exponentially faster than underlying premiums – a classic case of value leaking away from the policyholders.
Here are my own two bits on the matter. We must first look at how reliant India’s banking sector has become on insurance distribution to pad its bottomline. In FY26, insurance income accounted for a staggering 75.6 per cent of profit before tax for IndusInd Bank Ltd, followed by Bandhan Bank Ltd (30.8 per cent), DCB Bank Ltd (21 percent), and Yes Bank (19.3 per cent). Among the large banks, for State Bank of India it is 2.6 per cent and ICICI Bank 0.6 per cent.
Of course, the share of insurance income in a bank’s profit matrix depends on the size of the profit base; if the underlying profit is small, the percentage will look artificially high. It behaves much like bad assets — in absolute terms, a bank’s non-performing assets might be low, but if its overall profitability is compressed, the ratio swells.
This brings us to cost efficiency, which is central to product-affordability and sustainable market growth. Higher customer acquisition costs directly penalise policyholder value and drain capital efficiency. Let us benchmark India’s cost architecture against three major Asian peers: Japan, South Korea, and China.
While direct cross-border comparisons are somewhat limited due to differing accounting standards, publicly available metrics show that life insurance acquisition costs as a percentage of total premiums are the highest in India, sitting at 12-16 per cent. In stark contrast, the comparable figure in China is 7-11 per cent, South Korea 8-12 per cent, while Japan boasts the highest efficiency at just 5-8 per cent.
Why does India lag so heavily in cost efficiency? The blame lies within our two dominant distribution pipelines: The traditional agency force and the bancassurance network.
The agency channel remains plagued by mass recruitment and expensive training cycles that yield low per-capita performance and high agent turnover. Meanwhile, under the current open architecture rules, banks are permitted to sell policies for up to nine insurers each across the life, general, and health sectors. Many of them merrily use this leverage to bundle high-margin insurance products with routine loan approvals.
An industry-wide focus on front-loaded, high first-year commissions juxtaposed against low renewal commissions forces distributors to prioritise fresh sales over long-term customer care.
Compounding the problem is a severe lack of consumer transparency. The average customer has no clue how much commission their broker or agent is pocketing. ("customer" and "their" okay? or customers?) One simple fix would be to mandate printing the exact commission amount boldly on the face of the policy document. After all, shouldn’t a client know exactly how much they are paying the intermediary they appointed? A broker’s strict customer-facing obligation should strengthen the argument for a transparent, value-linked remuneration model, rather than justifying immunity from disclosure.
Ideally, a customer should be able to choose an intermediary independently, relying on meaningful disclosures to compare one competitor against another. But in a milieu where the buyer has zero visibility regarding a broker’s past performance, regulatory penalties, or market conduct, making an informed choice is impossible. Selecting an intermediary is not the same as choosing a product: Without disclosure, the intermediary’s recommendation can easily be driven by the size of the payout rather than the actual needs of the consumer.
This inherent information asymmetry means customers rarely get to evaluate product pricing, historical claims ratios, or true suitability. Will the reintroduction of commission caps hurt the policyholder? Far from it—unchecked distribution costs are already spoling the party for the customers. In several key channels, distribution costs have grown much quicker than the underlying business, without a shred of evidence pointing to improved customer care.
Between FY23 and FY25, for Life Corporate Agents, new business premiums grew by 28 per cent, but distributor remuneration rose by 125 per cent, taking payouts to nearly 27 per cent of the first-year premium. This was frequently fattened by hidden rewards and volume incentives, adding another 30 to 60 per cent over the base commission.
Broker-sourced premiums for general insurance grew by 37 per cent, yet total commissions spiked by 173 per cent, effectively doubling the average commission rate. Motor commissions nearly tripled.
Are these soaring profits and remuneration packages truly proportionate to the effort expended, the complexity of the risk, and the ultimate value delivered to the policyholder?
The proposed framework seeks to resolve these anomalies. It plans to systematically link remuneration to actual effort and complexity, cleanly differentiate between open and closed distribution architectures, eliminate unnecessary intermediary layers, and capture all forms of alternative payouts to prevent circumvention. Group credit life payouts currently hover at around 45 per cent, while commissions for niche lines—like school buses, where the claims ratio is under 30 per cent—remain artificially high.
The high-cost distribution concentrated in existing channels has failed the consumer. It is pushing the industry to migrate towards a lower-cost, technology-driven ecosystem. The Irdai is positioning Bima Sugam and the Public Insurance Registry (PIR) as core digital public market infrastructure institutions designed to deepen market penetration.
Bima Sugam – collectively owned by 58 insurance companies and managed by the Bima Sugam India Federation – is set to roll out its initial motor insurance marketplace in November 2026. By January 2027, the platform will expand to include retail health products, followed sequentially by pure term-life policies.
Meanwhile, the PIR is being built to function for the insurance sector exactly how the Unified Payments Interface (UPI) revolutionised digital banking. Rather than acting as a rigid, centralised repository, it operates as an interoperable information exchange layer that securely connects life, health, and motor data across all underwriting platforms.
Once fully operational, PIR will eliminate the friction of app-hopping. Policyholders will be able to track upcoming renewals, verify critical nominee details, and update contact or banking credentials across multiple distinct insurers simultaneously. Transparency will make it vastly easier for families to discover dormant or unclaimed insurance payouts. Insurers, too, stand to benefit from this digital architecture through more robust risk assessment, advanced fraud detection, and the seamless porting of health policies between competing providers.
In a structural sense, what electronic trading exchanges and central depositories did for the capital markets in 1996, and what credit bureaus did for retail banking in the early 2000s, Bima Sugam and PIR are primed to execute for the insurance landscape today.
However, to ensure this transition succeeds without breaking the industry’s backbone, the regulator must balance its enthusiasm with operational reality. Along with slashing distributor commissions, the Irdai’s proposal to aggressively cap corporate operational expenses by tightening individual EoM limits requires careful calibration.
As an insurance company’s baseline cost of operations is inherently tied to the size and maturity of its balance sheet, squeezing acquisition costs and corporate overhead simultaneously could choke growth. Even with the proposed five-year glide path starting in FY28, the regulator would be wise to re-examine the systemic risks of tightening both levers simultaneously.
To offset the inevitable drop in distributor income and prevent a mass exodus of talent, the regulatory framework should actively look to expand the commercial scope of traditional intermediaries. Insurance distributors should be permitted to sell basic capital market products after undergoing structured, certified cross-training.
Simultaneously, why shouldn’t commercial banks be allowed to scale up their risk advisory capabilities? While independent insurance brokers operate with no policy sum insured limits, banks face strict, capped limits despite being licensed corporate agents for selling insurance. Equalising these rules would allow banks to leverage their massive institutional muscle to build capabilities and offer comprehensive risk management.
The Irdai has already taken a progressive step by proposing slashing of the minimum capital requirement for establishing an insurance brokerage from ?75 lakh down to ?10 lakh. This capital reduction will act as a major catalyst, incentivising smaller brokers to set up shop in tier-2 and tier-3 towns. To complement this grassroots push, the regulator should formalise a framework, allowing rural business correspondents to market standardised insurance policies.
Finally, India boasts a massive network of 527,488 common services centres set up under the Digital India initiative to deliver electronic public utilities, financial services, and healthcare access to rural citizens. If these micro-entrepreneurs are systematically trained and licensed to distribute basic insurance products, they can be transformed into an instant, nationwide grassroots workforce.
We must welcome structural distribution reforms if we are to clear the path for the national dream of achieving “Insurance for All by 2047”. But for that dream to manifest, the regulator must complement its hard commission caps with progressive, multi-product revenue avenues that keep India’s vast distribution workforce financially viable.
