IRDAI Proposes to Reset Insurance Commissions: Curbing Mis-selling and Putting the Customer First
The Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper (a draft for public comments) titled "Recalibrating Economics of Insurance Distribution" on 23 September 2026. Comments are open until 25 October 2026.
IRDAI says insurance in India is too often "sold, not chosen": pushed by high commissions, bundled with loans and sold without checking whether the buyer needs it.
Its data for FY23 to FY25 shows commissions growing much faster than premiums. In life insurance, broker-sourced premiums rose 37%, but broker commissions rose 173%. In motor insurance, premiums rose about 34%, while distributor commissions rose 259%.
Key proposals: bring back commission caps by product and channel; count all incentives (cash and non-cash) as commission; claw back commission when mis-selling is proven; pay less in the first year and more on renewals; and lower the overall Expenses of Management (EoM) limits in steps.
Proposed EoM limits: for life insurers, 15% of premium within 2 years and 12.5% within 5 years; for general insurers, 25% within 2 years and 20% within 5 years.
On loans, IRDAI proposes to stop forced bundling of insurance with credit. Borrowers would see loan terms with and without insurance, could buy cover from any insurer, and would pay the premium separately.
The Insurance Brokers Association of India supported the bundling ban and clawbacks but opposed commission caps, warning they could hurt rural distribution.
Insurance Regulatory and Development Authority of India (IRDAI)
The Insurance Regulatory and Development Authority of India (IRDAI) is the government body that regulates and promotes the insurance sector in India. It gives licences to insurance companies and their sellers, sets rules for products and prices, and protects the interests of policyholders (people who buy insurance). It is a statutory body, which means it was created by a law passed by Parliament: the IRDA Act, 1999. Its headquarters is in Hyderabad.
The consultation paper uses IRDAI's power to set limits on expenses and commissions, a power strengthened by the 2025 amendment law. By proposing caps, clawbacks and a ban on forced bundling, IRDAI is shifting its focus from growing sales to protecting policyholders.
Insurance Distribution in India: Agents, Brokers, Bancassurance and Commissions
Insurance distribution means the ways in which insurance reaches the buyer. Most people do not walk into an insurance company's office to buy a policy. Instead, a seller reaches them: an agent, a bank, a broker, a car dealer or a website. These sellers are called intermediaries, and they are usually paid a commission, a share of the premium the customer pays.
IRDAI's paper is a direct response to the post-2023 rise in commissions after product-wise caps were removed. By capping commissions, linking pay to renewals and banning forced bundling, it aims to make insurance a product customers choose, not one sold to them.
- Consultation paper: "Recalibrating Economics of Insurance Distribution", released 23 September 2026; comments till 25 October 2026
- Life insurance, FY23 to FY25: broker-sourced premiums up 37%, broker commissions up 173%; average broker commission rose from 8.5% to 17%
- Retail health insurance commissions rose from about 10% to about 30%
- Motor insurance: premiums up about 34%, distributor commissions up 259%; OEM-linked brokers and MISPs got about ₹7,050 crore in commission on about ₹29,000 crore of premium
- Proposed EoM limits: life 15% (2 years), 12.5% (5 years); general 25% (2 years), 20% (5 years)
- 61st-month persistency: 48% (traditional) vs 71% (online)
- Other proposals: public registry of mis-selling, seller identity tagged to each policy, extra allowance for rural and small-town sales