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The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a revolutionary reform framework for crores of policyholders and general insurance customers of the country. To bring transparency in the insurance sector, provide more value to policyholders and curb the rampant commissioneering that has been going on for a long time, the regulator has released a consultation paper ‘Recalibrating Economics of Insurance Distribution’. On one hand, this new proposal is going to cut the huge profits of insurance brokers, corporate agents (banks) and big distributors, while on the other hand, the way has been cleared for common policyholders to get cheaper premiums, stop mis-selling and get better returns on savings policies.
Till now, in the insurance sector, a large part of the premium paid by the customer used to go into the commission pockets of agents, banks and intermediaries. Consumers are going to get these 5 big benefits directly from the new rules of IRDAI:
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Premium may be cheaper: Due to reduction in distribution cost and management expenses (Expenses of Management – EoM) of companies, insurance companies will have scope to reduce premiums. Its impact can be seen especially in health insurance and motor insurance.
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Complete ban on forced insurance with loans: Banks and NBFCs will no longer be able to force customers to impose the policy of their partner insurance company (Compulsory Bundling) while giving home loan, personal loan or car loan. This will completely depend on the wishes of the customer.
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Strict cap on commission of banks: There is a proposal to reduce the commission of banks and lenders selling insurance along with loans to just 2% to 5%. This will curb the trend of forcibly selling insurance to customers in bank branches.
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Prohibition of mis-selling and fraud: It will be mandatory for insurance companies and agents to keep written records of customer needs and product suitability analysis. This means that a wrong ULIP or endowment policy cannot be sold to an elderly or low income person just to earn a hefty commission.
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Less loss on policy surrender: Reduction in the heavy front-loaded commission in life insurance will improve the asset build-up of the policy from the first year itself, thereby saving the customer from losing his hard-earned money if he leaves the policy midway.
Data from the regulator has revealed that while motor premiums increased by 34% between financial years 2023 and 2025, an unexpected jump of 259% was seen in the commission received by distributors. Similarly, new premiums in life insurance increased by 28%, while payments received by banks and corporate agents registered a huge increase of 125%. To curb this unbridled spending, the regulator has proposed new product-wise commission caps:
| Type of Insurance | Current Position (Average Commission) | New cap for distribution firms/brokers | New cap for individual agents |
| Health Insurance (for the first time) | 30% to 35% | maximum 15% | maximum 20% |
| Health Renewal/Porting | 15% to 25% | only 5% | only 10% |
| Motor third party (new vehicles) | 20% to 24% | Zero (0% commission) | 2.5% |
| Motor own-damage (new vehicles) | from 25% to 40% | only 5% | 10% |
| Term Life Insurance (Multi-Year) | 35% to 40% | 25% (first year) | 30% (first year) |
IRDAI has set a 5-year ‘glide path’ to strictly limit not only the commission but also the total operating expenses (Expenses of Management) of insurance companies:
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Life Insurance Companies: The current expenditure limit will have to be reduced to 15% in the next 2 years and to 12.5% within 5 years.
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General Insurance Companies: Companies will have to reduce their management expenses by 25% within 2 years and 20% within 5 years.
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Crackdown on audit and indirect payments: Now indirect payments like gifts, rewards, foreign trips and sponsorships have also been included in the definition of ‘commission’, so that additional benefits are not given to the agents through the back door.
The ultimate goal of this entire reform is to shift insurance sales from the web of middlemen to a transparent digital platform through ‘Bima Sugam’ and Market Infrastructure Institutions (MIIs). Just as UPI changed the world of payments, similarly through Bima Sugam, common citizens will be able to directly compare policies of different companies and buy policies online at a lower price without any commission agent.
The regulator has consulted all stakeholders, insurance companies, agent organizations and the general public on this consultation paper. 25 October 2026 Suggestions and feedback have been sought till date. Final regulations will be issued after reviewing these suggestions. If this proposal is implemented in its current form, it will prove to be the biggest customer-friendly step ever in the history of the Indian insurance industry.