India’s insurance sector has recorded strong growth in premiums in recent years, but the expansion in actual insurance coverage has not kept pace with that growth. At the same time, distribution expenses, commissions and payments to intermediaries have increased.
Against this backdrop, the Insurance Regulatory and Development Authority of India (IRDAI) has proposed a wide-ranging overhaul of the country’s insurance distribution system. Its September 23, 2026 consultation paper, titled “Recalibrating Economics of Insurance Distribution,” focuses on distribution costs, intermediary remuneration, customer choice, transparency and policyholder outcomes.
The regulator has identified several structural issues across the distribution ecosystem, including a complicated intermediary framework, restrictions on distributor activities, rising expenses, commission structures, limited transparency, compulsory bundling, mis-selling, motor insurance economics, digital infrastructure and the need for greater insurance awareness.
IRDAI Raises Concerns Over Distribution Costs and Customer Outcomes
The consultation paper examines how the existing economics of insurance distribution can influence the behaviour of insurers and intermediaries. IRDAI has raised concerns that remuneration can be linked more closely to acquiring new premium than to policy suitability, persistency, servicing, claims experience and long-term customer outcomes.
One of the figures highlighted in the consultation paper is life insurance’s 61st-month persistency rate of 48%, compared with 71% for policies purchased through online channels. IRDAI has cited this difference while discussing the relationship between distribution models and policy continuation.
The regulator has also pointed to rising distribution costs in general insurance. According to the data cited in reports based on the consultation paper, motor insurance commissions increased from around 9% to 25%, while retail health insurance commissions rose from approximately 10% to 30%.
The paper also highlights customer grievance data. In FY26, 63% of complaints disposed of through Bima Bharosa were settled in favour of policyholders, while 75% of cases disposed of at the Insurance Ombudsman level were decided in favour of customers.
IRDAI has also raised concerns about the bargaining power of large distributors and the possibility that remuneration may increasingly reflect access to customers rather than the actual cost and effort involved in distribution.
Three-Part Distribution Structure Proposed
One of the major proposals is to simplify the existing distribution architecture. IRDAI has proposed reducing the current eight broad categories into three structures:
- Insurance Distribution Entity (IDE)
- Insurance Distribution Person (IDP)
- Market Infrastructure Institution (MII)
The proposal aims to ensure that entities performing similar functions face broadly similar entry requirements, capital norms, regulatory obligations and treatment.
The regulator has also proposed simpler registration procedures, lower entry requirements and reduced fees to encourage wider participation and competition, particularly in underserved areas.
Another proposal would allow distributors to undertake other financial and non-financial activities, subject to approval from the relevant regulator. IRDAI has linked greater diversification of distributor income with reducing dependence on insurance commissions.
The consultation paper also proposes changes to distributor personnel requirements, including a minimum Class XII educational qualification, enhanced training and online testing.
Changes Proposed for Commissions and EoM
IRDAI has proposed changes to the way insurers calculate and control their expenses and commissions.
For general insurers, the proposal would shift the EoM calculation from Gross Written Premium (GWP) to domestic Gross Direct Premium Income (GDPI). The framework also proposes a phased reduction in overall EoM limits. For life insurers, the proposed framework includes a company-level EoM limit of 12.5% of GDPI, while the proposal for general insurers targets 20% of GDPI over the proposed five-year period.
The consultation paper also seeks to change incentives in life insurance by placing greater emphasis on policy persistency rather than simply rewarding first-year acquisition.
The proposed framework includes higher emphasis on renewal commissions, while commission treatment would be lower for single-premium products and certain products receiving tax benefits.
The regulator has also proposed stronger controls over compulsory bundling, particularly in situations where customers may have limited ability to compare alternative products.
Bima Sugam and Public Insurance Registry
Digital infrastructure forms another important part of the proposed reforms. IRDAI has proposed Market Infrastructure Institutions to provide a digital, pull-based alternative to the traditional intermediary-led model.
Bima Sugam is the main example of this approach. The platform is intended to make it easier for customers to access, compare and purchase insurance products through a digital marketplace. Recent reports have said IRDAI expects Bima Sugam to become operational around November.
The consultation paper also refers to the Public Insurance Registry (PIR) as a digital public infrastructure for the insurance sector. The proposed registry is intended to provide a common information layer and support greater transparency, comparison and portability across the insurance ecosystem.
IRDAI has also proposed using the Policyholder Education and Protection Fund to support greater insurance awareness and consumer education.
Focus on Measuring the Impact of Reforms
The consultation paper does not focus only on changing regulations. It also proposes measuring whether the reforms produce the intended outcomes.
The suggested indicators include Expense of Management ratios, commission payments, customer complaints and grievances, policy persistency, usage of the Public Insurance Registry, customer satisfaction, direct purchases and cost-audit results.
This approach would allow the regulator to assess the effect of the distribution reforms over time rather than relying only on whether new rules have been implemented.
The consultation paper is currently a proposal and not the final regulatory framework. Stakeholders, including insurers, intermediaries and other participants in the insurance ecosystem, can provide feedback during the consultation process. The final rules may therefore differ from the proposals outlined in the paper.
Disclaimer: This article summarises proposals contained in IRDAI’s consultation paper on insurance distribution and related publicly reported information. The measures discussed are proposals and should not be treated as final regulations unless and until formally notified by IRDAI. Readers should refer to official IRDAI notifications and final regulations for the applicable rules.