Insurance brokers have urged the PM and FM to review IRDAI’s proposed commission caps

India’s insurance brokers have stepped up their opposition to the Insurance Regulatory and Development Authority of India’s proposed overhaul of insurance distribution economics, with the Insurance Brokers Association of India (IBAI) writing to Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman. The association says the proposed commission caps and lower expense limits could put at least 10 lakh livelihoods at risk over five years, while potentially reducing insurance access and customer servicing in smaller cities.

The dispute follows IRDAI’s September 23 consultation paper, “Recalibrating Economics of Insurance Distribution”, which seeks to reduce distribution costs, curb mis-selling and improve value for policyholders. The regulator has proposed more than 30 product- and channel-specific commission limits, alongside a phased reduction in insurers’ Expenses of Management (EoM) limits. Stakeholders have until October 25, 2026, to submit their feedback.

Key takeaways

• IBAI has written to the Prime Minister and Finance Minister seeking intervention on IRDAI’s proposed distribution reforms.
• Brokers object to more than 30 proposed commission caps across products and distribution channels.
• IRDAI also wants to reduce insurers’ overall EoM limits over five years.
• IBAI estimates at least 10 lakh livelihoods could be affected during the transition.
• The regulator says the reforms are intended to lower distribution costs, reduce mis-selling and improve policyholder value.
• Brokers argue lower payouts will not automatically translate into lower premiums.
• IRDAI’s consultation process remains open, with comments due by October 25.

Why insurance brokers are opposing IRDAI’s proposal

At the heart of the disagreement is how insurance distribution should be paid for.

IRDAI’s proposed framework attempts to connect remuneration more closely with the complexity of a product and the effort required to sell and service it. The regulator argues that the existing economics of distribution can create incentives for aggressive selling, particularly when distributors receive disproportionately high payouts for certain products.

IBAI does not oppose the objective of reducing mis-selling. In its submissions, the association has said it supports several parts of the consultation paper, including restrictions on compulsory insurance bundling with loans, stronger suitability requirements, commission clawbacks in proven cases of mis-selling, greater transparency around related-party payments and identifying salespersons linked to policies.

The disagreement is mainly over the scale and structure of the proposed commission controls.

IBAI says applying broad caps across products and channels fails to account for the different economics of tied agents, banks, brokers and other intermediaries.

The association also argues that a customer-appointed broker has a different role from a distributor working for a particular insurer. Brokers compare products, negotiate coverage and can assist customers during claims, while tied distribution channels primarily represent an insurer’s products.

According to IBAI, treating these channels too similarly could reduce the economic incentive to provide independent advice and servicing.

What IRDAI is proposing

IRDAI’s consultation paper goes beyond commission limits. It proposes a broader redesign of how insurance distribution is regulated.

For general insurers, the regulator has proposed shifting the EoM benchmark from gross written premium to domestic gross direct premium income and gradually reducing the limit from 30% to 20% over five years.

For life insurers, the proposed company-level EoM limit would move toward 15% of gross direct premium income within two years and 12.5% within five years. For insurers already below certain levels, the consultation paper proposes additional targets.

The regulator also wants stronger controls around indirect remuneration and non-monetary incentives. Cost audits would become mandatory for insurers and large insurance distribution entities, while commission policies would have to be disclosed more clearly.

IRDAI has also proposed linking a salesperson’s identity to policies, publishing information about mis-selling incidents and clawing back commissions when mis-selling is established.

The proposals are therefore not simply about cutting commissions. They represent a broader attempt to change the incentives behind insurance distribution.

Commission caps would vary by product

The proposed commission structure differs depending on the type of insurance.

For individual life insurance, the consultation paper proposes commission ranges for intermediaries of roughly 5% to 20%, depending on the product and premium-payment term. For agents, the corresponding range is approximately 6.25% to 25%.

For individual pure-term insurance, the proposed first-year commission is 25% for intermediaries and 30% for agents, with lower renewal commissions.

Health insurance would also see new limits. For individual health products, first-time commissions are proposed at around 15% for distribution entities and 20% for agents, while renewal commissions would be lower.

Motor insurance is another major area of change. IRDAI has proposed zero commission for distributors on mandatory third-party motor insurance, while agents and associates could receive 2.5%.

For some motor own-damage, personal accident and legal-liability covers on new vehicles, the proposed commission would be 5% for intermediaries and 10% for agents.

The regulator has also proposed additional rewards for business generated in underserved areas, recognising that distribution economics can be different in smaller markets.

Why brokers say the policy could hurt jobs

IBAI’s strongest warning concerns employment.

The association says insurance distribution supports more than 83 lakh professionals, including individual agents, micro-insurance agents and point-of-sale persons.

According to data cited by IBAI, brokers sponsored 14.81 lakh of India’s 27.18 lakh point-of-sale persons as of March 31, 2025. It also said brokers sponsored 16,230 of 26,316 motor insurance service providers.

Many of these workers are self-employed and operate in Tier-2 and Tier-3 cities.

IBAI’s argument is that a commission cap only works if the permitted remuneration is sufficient to cover the cost of acquiring, advising and servicing customers. If commissions fall below that level, distributors could stop serving lower-value customers or withdraw from smaller markets.

The association has therefore estimated that at least 10 lakh livelihoods could be at risk over the proposed five-year transition period.

That figure is an industry association estimate, not an independently established forecast of actual job losses.

The broader concern is more straightforward: if distribution becomes less profitable, companies may consolidate operations, reduce sales networks or automate parts of the process.

Could lower commissions actually reduce insurance premiums?

This is the central economic question behind the dispute.

IRDAI’s objective is to reduce the cost of insurance distribution and improve the value received by policyholders. Lower commissions and lower management expenses could, in principle, leave insurers with more room to reduce premiums, improve returns on savings products or strengthen their financial position.

But lower distribution costs do not automatically mean an equal reduction in premiums.

IRDAI member Swaminathan Iyer has acknowledged that every reduction in distribution cost will not mechanically translate into a corresponding fall in premiums. The regulator’s broader objective is “overall value” for policyholders, which includes affordability, product quality, claims service and grievance handling.

IBAI is using precisely this point to challenge the proposed framework.

The brokers’ association argues that there is no mechanism in the proposal guaranteeing that money saved through lower commissions will be passed back to customers through lower premiums.

This creates a policy-design question: should regulation directly cap distribution costs, or should it instead focus on outcomes such as mis-selling, claims quality, transparency and fair value?

Brokers point to existing cost trends

IBAI has also challenged the argument that insurance distribution costs are simply rising unchecked.

The association has cited IRDAI data showing that general insurers’ expenses of management declined from 28.2% of premium in FY2022-23 to 26.5% in FY2024-25, even while premiums grew by roughly 13% annually.

IBAI says the apparent increase in reported commission expenses is partly explained by the reclassification of payments that were previously recorded under other expense categories.

That distinction matters because a regulatory framework based on headline commission growth could produce different conclusions if part of the increase reflects accounting or classification changes rather than genuinely higher economic payouts.

The association has therefore called for a more detailed impact assessment before the proposed rules are finalised.

The risk of alternative payment arrangements

Another concern raised by brokers is that hard product-level caps could encourage companies to find other ways of compensating distributors.

IBAI has warned that tighter sub-caps could encourage alternative remuneration structures, including payments through other expense categories or overriding commissions.

The association says this could recreate some of the problems that earlier commission regulations were designed to address.

India moved away from most product-level commission caps in 2023, giving insurers greater flexibility within overall expense-management limits.

IRDAI now argues that the experience since then shows the need for a more structured approach because distribution incentives can influence how products are sold.

This creates a difficult regulatory balance. Excessively restrictive rules can encourage circumvention, while excessive flexibility can create incentives for distributors to prioritise high-commission products.

Brokers want the 2023 framework retained

IBAI has asked IRDAI to retain the existing 2023 Expense of Management framework, potentially with tighter computation rules, rather than replacing it with the proposed structure immediately.

It has also proposed that commission controls should be concentrated on areas where customers have limited choice.

Credit-linked insurance is a major example because insurance can sometimes be sold alongside loans, creating concerns about customers being pressured into purchasing coverage.

IRDAI itself has proposed banning compulsory bundling of insurance with credit or loans while allowing legitimate combinations where customers remain free to choose.

IBAI supports this direction but wants the regulator to focus stronger commission controls on these coerced-choice situations rather than applying broad restrictions across the market.

The association has also called for exemptions or different treatment for commercial and large risks, where distribution and servicing economics can be substantially different from retail insurance.

The consumer perspective is more complicated

The dispute is not simply brokers versus IRDAI.

Consumers have their own interest in lower distribution costs and greater transparency.

A recent LocalCircles survey cited by Moneycontrol found that 71% of respondents supported limits on distributor commissions, while 82% wanted insurers to disclose commissions before purchase. The same survey found that 86% of respondents said they had never been informed about the commission their agent or distributor would earn.

These findings strengthen IRDAI’s argument that remuneration needs greater transparency.

At the same time, insurance is not simply a digital purchase. Customers may need help selecting coverage, renewing policies, changing insurers, filing claims and resolving disputes.

If commission reductions make servicing uneconomic, customers in smaller cities could potentially lose access to human assistance.

The policy challenge is therefore to reduce incentives for bad sales without weakening incentives for good advice and after-sales service.

Public-sector and smaller insurers could face pressure

IBAI has also warned that uniform rules could affect insurers differently.

Large private insurers and established digital distributors may be better positioned to absorb technology and compliance costs. Smaller insurers and standalone health insurers may have less room to reduce fixed expenses.

Public-sector insurers face another constraint because their spending and payment structures are subject to additional scrutiny.

IBAI argues that if some distributors find ways around strict commission caps while public-sector insurers remain bound by more rigid compliance processes, competition could become distorted.

The association has also cited historical changes in public-sector insurers’ market share during earlier commission-cap regimes as part of its argument, although such historical comparisons do not by themselves establish what would happen under the proposed 2026 framework.

IRDAI says reform is about changing incentives

From IRDAI’s perspective, the proposed rules are designed to address a different problem: the incentives embedded in insurance distribution.

IRDAI member Swaminathan Iyer has argued that high first-year commissions can encourage distributors to prioritise the initial sale rather than long-term policy persistence.

The regulator therefore wants to rebalance remuneration toward renewals and product suitability.

IRDAI has also argued that delaying implementation for too long could create another unintended incentive: distributors might accelerate sales before lower commission limits take effect.

That makes the consultation period particularly important. The regulator has invited industry feedback and says it will evaluate alternative proposals based on their economic rationale, data and impact on policyholders.

What happens next

The current proposals are still at the consultation stage. They are not final commission rules.

Stakeholders have until October 25, 2026, to submit comments. IBAI has said it will submit its detailed response to IRDAI while separately seeking discussions with the Prime Minister and Finance Minister.

The final framework could therefore differ materially from the consultation paper.

The immediate question is whether IRDAI will retain broad product- and channel-specific caps, modify them based on industry feedback or introduce more targeted restrictions for areas where customer choice is limited.

The Bigger Picture

India is trying to expand insurance coverage while simultaneously making insurance more affordable and reducing mis-selling. Those goals can conflict if distribution becomes too expensive on one side or too unprofitable on the other.

IRDAI’s proposed framework represents a shift from the flexibility introduced in 2023 toward a more structured system of commissions, expenses and disclosure. Brokers are effectively asking the regulator to prove that the proposed restrictions will improve the customer’s economics before imposing them across the industry.

The strongest version of the reform would therefore not simply ask whether commissions are too high. It would measure whether customers ultimately receive better prices, better products, better claims support and better transparency.

Looking Ahead

The October 25 consultation deadline will be the next major milestone. Feedback from brokers, insurers, agents and other stakeholders could determine how much of the proposed commission architecture survives into the final regulations.

For the insurance industry, the outcome will influence distribution economics for years. For policyholders, the important test will be whether lower distribution costs translate into tangible improvements in affordability, service and claims outcomes rather than simply moving costs from one part of the insurance ecosystem to another.