The Insurance Regulatory and Development Authority of India (IRDAI) has proposed significant changes to the way insurance companies and distributors manage expenses and commissions.
The proposals are part of a consultation paper titled “Recalibrating Economics of Insurance Distribution”, released on September 23, 2026. The regulator is looking at ways to reduce distribution costs, improve efficiency and strengthen safeguards for policyholders. The proposals are not final rules yet, and stakeholders have been invited to submit their feedback.
The move comes as IRDAI points to a gap between the growth in insurance premiums and the expansion in the number of people covered by individual life insurance.
Insurance Coverage Has Not Grown at the Same Pace
According to figures cited from IRDAI’s consultation paper, the number of new individual life insurance policies rose only marginally from about 266 lakh in FY2016 to 270 lakh in FY2025. The number of individual policies in force also remained around 3,270 lakh over the same period.
At the same time, India’s GDP grew at an average rate of around 10% over the decade. Life insurance business grew at about 10%, while general insurance grew at around 13% through FY2025. IRDAI has indicated that the overall expansion in insurance coverage remains insufficient to close the country’s protection gap and achieve the “Insurance for All by 2047” objective.
The regulator has also highlighted the rising cost of doing business. Excluding LIC and SBI Life, life insurers recorded costs ranging from 18% to 39%, while general insurers had a range of about 20% to 48%.
Commission and Expense Limits May Become Stricter
IRDAI has proposed a phased reduction in insurers’ Expenses of Management (EoM).
For life insurers, the proposed company-level EoM ceiling would come down to 15% within two years and then to 12.5% within five years. For general insurers, the proposed limit would move to 25% within two years and 20% within five years, with the calculation framework also being changed for general insurance.
The consultation paper also proposes bringing commissions, incentives, rewards and certain other forms of remuneration under a more clearly defined framework. Commission limits would vary depending on the insurance product, distribution channel and other factors.
For life insurance savings products with a premium-paying term of 10 years or more, the proposal includes a first-year commission ceiling of 20% for insurance distribution entities and 25% for agents. The proposed renewal limits are 3% and 5%, respectively.
The wider proposal also includes product-specific limits for health, motor and other insurance products.
Why Insurers and Distributors Are Concerned
The proposed changes could significantly alter the economics of insurance distribution. IRDAI has pointed to the sharp rise in distributor payouts compared with the growth in new business premium.
Between FY2023 and FY2025, new business premium generated through corporate agents increased by 28%, while total distributor remuneration in a representative sample increased by 125%. The sample covered about 92% of premium procured through corporate agents.
The proposals have also had an immediate impact on insurance-distribution stocks. PB Fintech, the parent company of Policybazaar, fell sharply after the consultation paper was released, while Turtlemint also came under heavy selling pressure. Reports said PB Fintech fell about 35% in the September 24 trading session, while Turtlemint hit its lower circuit.
Analysts have also raised concerns that lower commissions could affect distributor participation and potentially influence new business volumes, particularly during the transition to the proposed framework.
What Could Change for Policyholders?
The proposed reforms are intended to reduce the costs associated with insurance distribution and improve the focus on policyholder outcomes.
Lower distribution and management expenses could potentially leave more of the premium available for the underlying policy benefits or investment component in savings-oriented products. The proposed framework also places greater emphasis on policy servicing, suitability and reducing mis-selling rather than simply increasing the number of new policies sold.
IRDAI is also proposing stronger measures around customer needs, seller-level identification, commission clawbacks in cases of mis-selling and restrictions on certain incentive structures. The consultation paper includes proposals aimed at preventing compulsory bundling of insurance with loans and credit products.
Customer grievance handling is another important area. General insurance complaints recorded on the Insurance Bharosa portal increased from 78,347 in FY2023 to 137,361 in FY2025, with 69% of the complaints related to claims, according to the figures cited in the source material.
The proposed changes are therefore aimed not only at controlling commissions and expenses but also at shifting the focus of insurance distribution towards better servicing, policy persistence and claim-related support.
Disclaimer: This article is based on IRDAI’s consultation proposals and available industry reports. The proposals are subject to stakeholder feedback and may be changed before any final regulations are issued. Readers should refer to official IRDAI notifications and the final regulatory framework for the applicable rules.