India’s insurance distribution industry is facing a major regulatory shake-up, with insurance brokers pushing back against the Insurance Regulatory and Development Authority of India’s (IRDAI) proposed changes to commission structures and insurer expenses.
The Insurance Brokers Association of India (IBAI) has written to PM Modi and Finance Minister Nirmala Sitharaman, asking the government to reconsider the proposed framework. The association has warned that the changes could sharply reduce broker revenues, disrupt insurance distribution and put nearly one million jobs at risk over five years.
The dispute centres on an IRDAI discussion paper released on September 23 that seeks to recalibrate the economics of insurance distribution. The regulator wants commission levels to reflect the complexity of insurance products and the effort involved in selling them. Mandatory covers such as third-party motor insurance could attract little or no commission under the proposed structure. Stakeholder comments have been invited until October 25.
IRDAI’s broader objective is to bring down the cost of insurance, reduce incentives for mis-selling and ensure that policyholders receive better value. The regulator believes excessive upfront commissions can encourage distributors to focus on acquiring new customers rather than servicing existing policyholders.
IRDAI Chairman Ajay Seth said the proposed framework is designed to shift the industry from a model where insurance is heavily push-sold to one where customers make informed choices. He said remuneration should reflect the product, distribution channel and effort involved, while commissions should increasingly reward persistency, servicing and suitability.
The regulator is also proposing a different approach to first-year and renewal commissions. Seth said the existing system tends to concentrate remuneration in the first year, whereas the new framework would moderate first-year payouts and strengthen renewal-linked incentives. The idea is to encourage distributors to build long-term relationships with policyholders instead of focusing mainly on fresh sales.
Brokers, however, argue that the proposed commission caps could make several insurance businesses financially difficult to sustain. IBAI has estimated that broker revenues could fall by 60-70% in some cases. It has also warned that the impact could extend beyond brokers to the wider insurance distribution ecosystem, including employees and other intermediaries.
The association’s concern is not limited to revenue. Brokers argue that lower remuneration could reduce the incentive to serve customers, particularly in segments where selling insurance requires considerable explanation and after-sales support. They also fear that smaller cities and underserved markets could see weaker distribution if intermediaries find certain products commercially unattractive.
Another concern is whether lower commissions will actually translate into cheaper insurance policies. Brokers have argued that the proposed framework does not automatically require insurers to pass the savings from lower distribution costs to customers. They want a detailed regulatory impact assessment covering policyholders, employment, insurers, public-sector companies and foreign investment before hard caps are introduced.
IBAI has also warned that strict commission ceilings could encourage some players to find alternative ways to compensate distributors. The association fears that payments could be reclassified as marketing or other fees, recreating some of the practices that earlier commission regulations sought to eliminate. It has therefore called for targeted action against mis-selling rather than blanket restrictions across the insurance sector.
The timing has added to the industry’s concerns. India recently opened the insurance sector to 100% foreign direct investment, making regulatory stability an important consideration for global investors. Brokers argue that a significant overhaul soon after the FDI change could increase uncertainty for companies planning long-term investments.
IRDAI, meanwhile, maintains that the reforms are intended to make insurance more affordable and efficient. The regulator says lower acquisition and servicing costs, supported by digital infrastructure such as Bima Sugam and the proposed Public Insurance Registry, should ultimately improve value for policyholders.
The Public Insurance Registry is expected to create a stronger data layer around insurance sales, claims, complaints, persistency and mis-selling. According to Seth, better data could eventually allow remuneration to be linked more closely to customer outcomes rather than simply the volume of policies sold.
IRDAI has also clarified that the proposed commission limits are maximums, not guaranteed payouts. Seth said insurers would have room to design remuneration around quality factors such as persistency, servicing and suitability, while mis-selling could trigger clawbacks.
Importantly, IRDAI does not currently plan a gradual reduction in commission caps. Seth said the proposed commission framework would involve a reset, while the broader Expenses of Management limits would follow a five-year glide path. The regulator plans to publish draft regulations for public comments before the framework is finalised.
The debate now goes beyond commissions. At its heart is a larger question about how India can expand insurance penetration while keeping distribution commercially viable. Brokers want the existing 2023 framework to continue until its scheduled 2028 review, while IRDAI is pushing for faster changes to address mis-selling, high distribution costs and weak customer outcomes.
The final rules will determine how sharply the economics of insurance distribution change. The challenge for the regulator will be to reduce unnecessary costs without weakening the network that helps millions of customers buy, understand and maintain insurance policies.