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IRDAI commission caps face resistance from insurance brokers

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.

 

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Beyond

IRDAI tightens rules to curb insurance mis-selling

Buying an insurance policy could become more transparent and accountable if a new set of reforms proposed by the Insurance Regulatory and Development Authority of India (IRDAI) takes effect.

The regulator has proposed a broad overhaul of the insurance distribution system, with a focus on curbing mis-selling, controlling distribution costs and giving policyholders more information about how their policies are sold.

The proposals are part of IRDAI’s consultation paper, “Recalibrating Economics of Insurance Distribution”, released on September 23. The regulator has invited comments from stakeholders until October 25, 2026. The measures are proposals at this stage and are not yet final rules.

One of the most significant changes could directly affect insurance agents and other salespersons. IRDAI has proposed that when an insurance policy is found to have been mis-sold, the commission earned on that sale could be clawed back.

The regulator also wants the identity of the individual who sells a policy to be linked to it. Details of mis-selling incidents could subsequently be made available through the proposed Public Insurance Registry. The aim is to create clearer accountability for the person responsible for selling an insurance product.

IRDAI’s proposed framework places greater emphasis on whether a policy actually suits the customer’s needs.

For certain life insurance sales above a specified ticket size, insurers would have to document the customer’s needs, suitability assessment and the reasoning behind the product recommendation. Simply obtaining a customer’s signature or consent would not automatically remove the insurer or intermediary’s responsibility if the product was unsuitable.

The consultation paper flags practices such as presenting an insurance policy as a fixed deposit or high-return investment, failing to explain the consequences of stopping premiums, or encouraging a customer to surrender an existing policy and buy another based on misleading return claims.

The proposed rules also seek to cover direct and indirect remuneration, including monetary and non-monetary incentives, within the regulatory definition of commission. This is intended to prevent sales incentives from being structured in ways that bypass commission limits.

The reforms could also change how insurance is sold through banks and non-banking financial companies (NBFCs).

IRDAI has proposed prohibiting compulsory bundling of insurance with loans and other financial products. A lender should not make the purchase of an insurance policy a condition for providing a loan.

The proposal does allow certain packages where there is a specific and demonstrable benefit to the customer. The broader objective is to prevent customers from being pushed into buying insurance they may not need simply because they are seeking another financial product.

The regulator has also proposed banning volume-linked or reward-linked incentives for bank and NBFC employees selling insurance. Such incentives could include contests, milestone rewards, luxury gifts and other benefits that may encourage sales volumes over customer suitability.

IRDAI has proposed moving towards a more differentiated commission structure instead of relying on a single broad framework.

Commission limits would vary depending on the insurance segment, product, distribution channel, complexity of the product and the effort required to sell and service it.

Under the proposal, commission limits for individual life insurance would vary according to the premium payment term. Agent limits could range from 6.25% to 25%, while distribution entities could have limits ranging from 5% to 20%.

The regulator has also highlighted significant differences in distribution costs across the industry. Private life insurers paid an average commission of around 9% of total premium in FY26, while private general insurers paid more than 20%, according to data cited during the consultation process.

The proposed changes could therefore affect insurers, insurance agents, brokers, banks, NBFCs and digital distributors in different ways.

Another major part of the proposal concerns insurers’ Expense of Management (EoM), which covers costs involved in running the insurance business, including distribution-related expenses.

For life insurers, IRDAI has proposed moving to a company-level EoM limit linked to Gross Direct Premium Income (GDPI). The ceiling would be brought down to 15% within two years and 12.5% within five years.

General insurers would see the calculation shift from Gross Written Premium to domestic GDPI. The EoM limit would gradually decline from the existing 30% of GWP to 20% of GDPI over five years.

The regulator’s broader objective is to reduce structural distribution costs and improve efficiency across the insurance sector.

Transparency is another central feature of the proposed reforms.

IRDAI wants insurers and large distribution entities to disclose their commission policies and structures in a simple and accessible manner. Certain commercial insurance policies would also carry commission disclosures.

The idea is to give customers a clearer picture of the costs associated with selling an insurance policy and make it easier to compare products.

The regulator is also proposing a simpler three-tier insurance distribution architecture. The framework would broadly distinguish between Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions for Insurance.

IRDAI’s proposals also place greater emphasis on digital infrastructure.

Bima Sugam and the proposed Public Insurance Registry are expected to play a role in making insurance information easier to access, compare and manage. The regulator sees digital infrastructure as a way to improve transparency, portability and efficiency while reducing transaction costs.

Policyholders could get greater visibility into who is selling an insurance policy, how distributors are compensated and whether a product is appropriate for their needs.

Insurers and intermediaries, meanwhile, could need to adjust their sales practices, incentive structures and distribution models.

The consultation process will determine how the proposals evolve. Stakeholders have until October 25 to submit their views, after which IRDAI will consider the feedback before deciding on the final regulatory framework.

 

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Beyond

IRDAI imposes ₹1 crore fine on Canara HSBC

The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a ₹1 crore penalty on Canara HSBC Life Insurance Company over the sale of a deferred annuity policy to an 88-year-old customer through Canara Bank. The regulator found several lapses involving product eligibility, suitability assessment, verification, disclosures and internal controls.

The case has drawn attention because the policy was sold to a customer who was already above the product’s permitted entry age. The policy brochure specified an entry-age range of 30 to 80 years, while the customer was 88 at the time of the transaction. IRDAI said the sale therefore failed to comply with the approved product features.

The policy was a non-linked, non-participating deferred annuity plan. It carried an annual premium of ₹2 lakh and a four-year premium-paying term. The policy was sold through Canara Bank, which acted as the corporate agent for Canara HSBC Life. The customer’s daughter was named as the annuitant under the policy.

IRDAI began looking into the matter after taking suo motu cognisance of a social media post that highlighted the sale. The regulator sought an explanation from the insurer and later issued a show-cause notice. After considering the company’s response and holding a personal hearing, IRDAI passed its order on September 10, 2026.

The regulator’s findings went beyond the customer’s age. IRDAI identified shortcomings in the suitability assessment, saying the insurer did not adequately establish whether the product was appropriate for the customer. The verification and solicitation process also came under scrutiny.

The verification call was found to have lacked adequate due diligence. IRDAI also noted discrepancies in the proposal documents, including issues surrounding the customer’s date of birth and the information confirmed during the verification process. Such checks are intended to ensure that a policyholder is eligible for a product and understands the financial commitment involved.

Disclosure of policy information was another area where the regulator found problems. The required benefit illustration and policy documents were not adequately provided to the customer, according to the findings. Such documents are important because they explain the policy’s benefits, premium commitments and other key terms before a customer makes a financial decision.

The premium collection also became part of the regulatory concerns. Canara HSBC Life had collected ₹4.09 lakh from the customer, including the second-year premium. After the issue came to light, the insurer met the policyholder and refunded the entire amount at the customer’s request. The related commission was also reversed.

The refund did not, however, remove the regulatory violations. IRDAI imposed the ₹1 crore penalty under provisions of the IRDAI Protection of Policyholders’ Interests Regulations, 2024, the Corporate Governance Regulations, 2024 and the applicable Master Circular on Protection of Policyholders’ Interests.

Canara HSBC Life has said it has taken corrective steps following the incident. These include changes to its product brochure, policy documents and customer suitability assessment framework. The insurer has also introduced pre-issuance video-based validation calls aimed at strengthening checks around customer identity, understanding and consent.

IRDAI has directed the insurer to go further. Canara HSBC Life has been asked to conduct a comprehensive audit of policies sold to customers above 75 years of age through Canara Bank during the three financial years ending March 31, 2026. The exercise is intended to identify other cases involving possible violations of product eligibility, suitability and disclosure requirements.

The regulator has also directed the company to strengthen controls over its corporate-agent distribution network and submit an Action Taken Report on the directions within the specified timeline. The company must also place the regulatory order before its Board of Directors.

The case puts the spotlight on the responsibilities of banks and insurers when selling financial products to elderly customers. Insurance policies can involve substantial and long-term financial commitments, making proper suitability checks especially important when customers are older or may have different financial requirements.

The episode also highlights the difference between completing paperwork and ensuring genuine customer understanding. A policy can be formally documented, but the sales process still needs to establish that the customer is eligible, understands the product and is making an informed decision.

Senior citizens buying insurance products should therefore pay close attention to entry-age limits, premium commitments, policy tenure, benefits, exclusions and surrender conditions. Customers should also ask for the benefit illustration and policy documents and carefully check personal details before signing or making payments.

The ₹1 crore IRDAI penalty sends a broader message to the insurance distribution industry. Banks and insurers are expected to ensure that sales practices do not override customer suitability or policyholder protection.

The action also shows that insurance mis-selling and regulatory compliance are receiving closer scrutiny. In this case, the financial loss to the insurer is limited to the penalty, while the customer received a refund. The wider impact could be more significant as the mandated audit and corrective measures bring greater attention to how insurance products are sold to elderly customers.

 

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Corporate

Patanjali gets IRDAI nod to enter general insurance

Patanjali Ayurved is preparing to sell more than toothpaste, packaged foods and Ayurvedic products. The company founded by yoga guru Baba Ramdev has received regulatory approval to enter India’s general insurance business through the acquisition of Magma General Insurance.

The Insurance Regulatory and Development Authority of India (IRDAI) has approved the proposed acquisition by Patanjali Ayurved and the Dharampal Satyapal (DS) Group. The transaction, valued at nearly ₹4,500 crore, will give Patanjali a 73.56% stake in Magma General Insurance, while the DS Group will hold 24.5%. Together, the two buyers will control about 98% of the insurer.

The approval, issued through a letter dated July 28, is valid for three months. The buyer group will have to complete the share transfer within that period and meet the conditions attached to the regulatory clearance.

For Patanjali, the deal represents a significant shift in strategy. The company has built its name around Ayurveda, healthcare products, personal care, packaged foods and other fast-moving consumer goods. Insurance will now become its first major business in financial services.

Rather than applying for a fresh insurance licence and building a company from scratch, Patanjali is entering the market by acquiring an existing general insurer. Magma already has an operating business and offers products across areas such as motor, health, property and commercial insurance.

That gives Patanjali something it would have taken years to build on its own: an established insurance platform, an existing customer base and a functioning distribution network.

Magma General Insurance reported gross written premiums of ₹3,615.48 crore in financial year 2025-26, compared with ₹3,334.4 crore in the previous year. Its reported net worth stood at about ₹1,234 crore as of March 31, 2026, according to Crisil Ratings.

The insurer’s existing reach could be particularly important for Patanjali. Magma distributes insurance through agents, corporate partners, financial-services channels and automobile-related networks. Patanjali, meanwhile, has spent years developing a wide retail presence, including in smaller towns and rural and semi-urban markets.

The combination could therefore offer Patanjali a way to take insurance products deeper into markets where awareness and penetration remain relatively low. Industry observers expect the company to explore how its existing consumer network can complement Magma’s insurance distribution capabilities.

The acquisition also comes at a time when India’s insurance sector is attracting fresh capital and new strategic interest. Recent regulatory changes have opened the door to greater ownership flexibility, while insurers are looking to expand coverage in a market that remains underinsured compared with many developed economies.

Insurance is also a very different business from selling consumer products. A policy is a long-term promise, and the real test comes when a customer files a claim. The new owner will therefore have to balance Patanjali’s strong consumer recognition with the regulatory, actuarial and risk-management requirements of the insurance business.

The transaction itself has been in the works for more than a year. The proposed acquisition involved shares held by existing shareholders, including Sanoti Properties LLP, linked to the Adar Poonawalla Group, along with Celica Developers and Jaguar Advisory Services.

Magma General Insurance was originally established in 2009 as a joint venture involving Magma Fincorp, Celica Developers, Jaguar Advisory Services and Germany’s HDI Global SE. The Poonawalla group later acquired Magma Fincorp in 2021, making it the promoter of the insurance company.

The IRDAI clearance now brings the transaction closer to completion. Once the share transfer is completed, Patanjali will become the majority owner of Magma General Insurance, marking its formal entry into the financial services sector.

The insurance venture, however, will be judged on a different measure. For Patanjali, the challenge is no longer simply reaching consumers. It is earning their trust when they need financial protection the most.

Patanjali’s move is notable because it brings a large consumer-facing Indian brand into general insurance at a time when the sector is becoming increasingly competitive.

For customers, however, the bigger question will be what changes after the ownership transition. The company will need to build confidence around pricing, policy terms, claims settlement and customer service—areas that matter far more to insurance buyers than the strength of a brand name.

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RBI, IRDAI cautious on banks in commodity derivatives

India’s financial regulators have taken a cautious stance on allowing banks and insurance companies to participate in commodity derivatives trading, according to remarks made by SEBI chief Tuhin Kanta Pandey.

Pandey said that both the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (IRDAI) are currently not inclined to permit such participation due to risk and structural concerns. As a result, banks and insurers are expected to remain out of the commodity derivatives segment for now.

The clarification comes even as the Securities and Exchange Board of India (SEBI) had earlier explored expanding participation in the commodities market to deepen liquidity and improve price discovery. SEBI had also discussed allowing banks and pension funds to enter the segment as part of efforts to strengthen the ecosystem.

However, the latest stance from the RBI and IRDAI indicates that the proposal has hit a regulatory roadblock. Officials believe commodity-linked instruments may not align with the long-term investment mandates of banks and insurance companies, and could expose them to additional volatility risks.

Following the remarks, market sentiment turned negative for commodity exchanges. Shares of Multi Commodity Exchange of India (MCX) fell by around 3–3.5%, reflecting concerns that reduced institutional participation could limit liquidity and trading volumes.

MCX, which dominates India’s commodity derivatives market, is particularly sensitive to regulatory changes affecting institutional access. Investors worry that without banks and insurers, the growth potential of the segment could be constrained in the near term.

At the same time, SEBI’s broader agenda to develop the commodity market remains in focus, including earlier proposals to involve pension funds and other long-term investors. But regulatory alignment between the three major bodies, SEBI, RBI, and IRDAI, appears to be the key hurdle.

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