Brief Overview:
Finding that insurance commissions have grown far faster than the business they support, IRDAI has proposed a distribution reset that could bring back hard commission caps, lower insurers’ expenses, simplify intermediary categories and reward customer value over sales volume.
Technical Details:
What Could It Mean For You?
Distributors:
1) Corporate agents, brokers, web aggregators, etc. to become insurance distribution entities (“IDEs”).
2) Initial capital of ₹10 Lakhs, receive permanent registration subject to annual fees and undertake permitted non-insurance business.
3) Sell products of multiple insurers without the existing limits under ‘Open Architecture’ mechanism. Hospitals to sell health insurance and non-dealer garages to sell motor insurance.
4) Commissions to reflect the effort involved, with lower caps for mandatory, group, single-premium, renewal and loan-linked insurance.
5) Insurance – related revenue > ₹50 Cr? Declare key financial information on your website.
Insurers:
1) From FY 2027–28, progressively reduce management expenses within 5 years in the manner specified.
2) Publish board-approved commission policies on website and undergo annual cost audits.
3) Tag each policy to the individual seller and claw back commission where mis-selling is established.
4) Sell non-competing products of group insurers only through their own branch employees and at lower commissions.
Customers:
1) Standard one-page product sheet and FAQ with key features, premiums, claims performance and service quality.
2) No more sharing of personal details for product details and premium rates.
3) Seller to explain the fit, not just make the sale! For prescribed life-insurance sales, sellers must document ‘suitability appropriateness of customers’. Customer’s signature is not enough.
4) Compare and buy policies from participating insurers through lower-cost platform Bima Sugam and know your product on the Public Insurance Registry.
Banks, NBFCs:
1) No compulsory bundling allowed as distributors.
2) Customer benefit and borrower’s choice of insurer to decide whether loan-insurance packages can continue.
3) Loan-linked insurance commissions to be capped at 2%–2.5% for life insurance, 1% on renewals, and nil–5% for motor, health and property insurance.
4) Trips, gifts, milestone bonuses, contest rewards and other sales-linked incentives for staff selling insurance to be prohibited.
5) MSME property insurance cover up to the property’s full value, with the existing ₹5 Crores cap proposed to be removed.
Comments on the proposed framework are invited until 25th October 2026.
Takeaways:
If implemented, the reforms could shift the insurance market from “sell more, earn more” to “sell right, stay accountable”. Easier entry and wider distribution opportunities would be balanced by lower pay-outs, tighter cost controls and direct accountability for the suitability of every sale.
For further details, please see:
Consultation paper on Distribution Reforms Part 1 and Part 2
For any queries/clarifications, please feel free to ping us and we will be happy to chat:
