24 September 2026 (Navroze Bureau) : The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a major overhaul of insurance distribution, including tighter commission limits, lower Expenses of Management (EoM) ceilings and stronger safeguards against mis-selling.
The regulator’s consultation paper, titled “Recalibrating Economics of Insurance Distribution,” proposes a five-year glide path that would bring life insurers’ EoM limit down to 12.5% and general insurers’ limit to 20%, while introducing product- and channel-specific commission caps.
General Insurers’ EoM Limit to Fall to 20%
For general insurers, IRDAI has proposed shifting the basis for calculating EoM from Gross Written Premium (GWP) to domestic Gross Direct Premium Income (GDPI).
The overall limit would be reduced progressively, reaching 20% within five years. The proposed glide path would first bring the limit to 25% within two years before reaching the 20% target.
The regulator said the change is intended to reduce distribution costs and improve the overall value of insurance for policyholders.
Life Insurance EoM to Reach 12.5%
For life insurers, IRDAI has proposed bringing the company-level EoM limit down to 15% within two years and 12.5% within five years.
The regulator has also proposed a longer-term 10% target for life insurers that were already below the proposed benchmark in FY25.
Commission Structure to Become Product-Specific
IRDAI is also proposing a return to hard commission caps, replacing the more flexible framework introduced in 2023.
Under the proposed system, commission limits would vary according to the insurance segment, line of business, distribution channel, product complexity and the effort required to sell and service a policy.
This means commission rates would no longer follow a single uniform structure across different insurance products.
Life Insurance Commissions to Vary by Policy Term
For individual life insurance products, the proposed commission limits would depend partly on the premium payment term.
For certain policies with terms of up to five years, distribution entities would face lower first-year commission limits, while longer-term policies could carry higher first-year caps. The consultation paper proposes distribution-entity commissions ranging broadly from 5% to 20%, depending on the product and payment term.
For life policies with terms of 10 years or more, the proposal allows distribution entities up to 20% first-year commission, followed by renewal commissions subject to specified limits.
Health and Motor Insurance Also Targeted
The proposed reforms cover other major insurance segments.
For individual health insurance, IRDAI has proposed first-year commission caps of 15% for distribution entities and 20% for agents and associates, with lower limits for renewals.
Motor insurance is also under scrutiny because of relatively high distribution costs. IRDAI said average commission rates in the segment were around 24%, prompting proposals for tighter product-specific limits.
Banks and NBFCs Face Tighter Rules
The regulator has proposed limiting commissions and incentives linked to insurance sales by banks and NBFCs.
It also wants to prohibit compulsory bundling of insurance with loans or credit, except where an appropriate package is considered to serve policyholders’ interests. Volume- or reward-linked incentives for bank and NBFC employees selling insurance would also be prohibited under the proposal.
Mis-Selling Could Lead to Commission Clawbacks
IRDAI has proposed stronger accountability for mis-selling.
The framework would require insurers and distributors to document customer needs and product suitability in specified cases. Where mis-selling is established, the regulator proposes allowing commission clawbacks.
The identity of individual salespersons could also be linked to policies to create greater accountability for sales practices.
Insurance Websites Could Face Dark-Pattern Restrictions
The consultation paper also targets dark patterns on insurance websites.
IRDAI has proposed that customers should be able to access product features, pricing and other important information without first being forced to submit personal details.
The objective is to make digital insurance buying more transparent and reduce practices that could influence consumers into actions they did not originally intend to take.
New Three-Tier Distribution Structure Proposed
IRDAI has proposed simplifying the existing insurance distribution architecture into three broad categories:
- Insurance Distribution Entities (IDEs)
- Insurance Distribution Persons (IDPs)
- Market Infrastructure Institutions (MIIs)
The proposed structure is intended to reduce regulatory fragmentation and make it easier for distributors to operate while maintaining common standards for entities performing similar functions.
Bima Sugam to Become a Digital Distribution Channel
The regulator is also promoting digital, “pull-based” insurance distribution.
Bima Sugam has been identified as one such Market Infrastructure Institution, with IRDAI expecting it to become operational within the next four to six months, according to reports on the consultation paper.
Industry and Policyholders Could See Changes
If implemented, the proposed reforms could change how insurers, agents, brokers, corporate agents, banks and other intermediaries earn from insurance distribution.
For policyholders, IRDAI says the broader objective is to reduce unnecessary distribution costs, improve transparency and strengthen protection against mis-selling.
However, the proposals are currently part of a public consultation process, rather than final regulations. IRDAI has invited comments until October 25, 2026.