The Insurance Regulatory and Development Authority of India has proposed a broad overhaul of insurance distribution, including a simpler three-tier structure, lower expense limits and revised commission rules.
IRDAI published the proposals in its consultation paper, Recalibrating Economics of Insurance Distribution. The document addresses distribution structures, insurer expenses, commissions, market conduct, transparency and digital infrastructure across India’s insurance sector.
Under the proposed structure, IRDAI would replace the existing fragmented framework with three broad categories: Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions. The regulator wants similar businesses performing similar functions to operate under comparable rules rather than separate regulatory structures.
The proposal also reduces entry requirements and regulatory fees for distributors. Distribution businesses would receive greater flexibility to conduct insurance alongside other financial or non-financial activities, potentially creating additional income sources in smaller markets.
Commission structures would change substantially. Instead of relying on a largely uniform approach, IRDAI proposes setting remuneration according to the insurance segment, line of business, distribution channel, product complexity and work required to sell and service the policy.
Insurers and large distribution entities would also need to publish their commission policies in a simple, accessible format. Specified commercial insurance policies would disclose commissions directly, giving customers more information about distribution costs included in policy pricing.
IRDAI is also targeting indirect payments that sit outside traditional commission definitions. The regulator proposes treating direct and indirect remuneration as commission where payments relate to insurance distribution, reducing the scope for insurers or intermediaries to shift compensation into separate incentive structures.
The changes extend directly into bancassurance and NBFC distribution. IRDAI proposes banning volume-linked or reward-linked incentives for employees of banks and Non-Banking Financial Companies involved in selling insurance products.
Mis-selling receives a separate set of controls. Insurers and distributors would need to document customer requirements and demonstrate suitability for specified insurance sales, creating an auditable record of how a policy recommendation was reached.
The regulator also proposes linking every policy to the identity of the individual seller involved in the transaction.
Mis-selling information would enter the public domain, increasing the visibility of complaints and conduct problems associated with insurers or distributors.
Commission claw-backs would form another enforcement tool. Where regulators establish mis-selling, insurers would have scope to recover remuneration already paid on the affected business rather than leaving distributors financially untouched after an unsuitable sale.
IRDAI also wants tighter controls around compulsory insurance bundling. The proposals address practices where customers taking loans or other financial products face pressure to purchase an insurance policy from an associated distributor.
Expense limits form another major part of the consultation. IRDAI proposes lowering insurers’ Expenses of Management, or EoM, through a phased structure over five years.
For life insurers, the calculation would move toward a company-level EoM limit linked to Gross Direct Premium Income. The proposed ceiling falls to 15% within two years and then to 12.5% within five years.
That approach replaces the more granular structure currently applied across different categories of life insurance business. Existing regulations calculate allowable life insurance expenses using separate percentages for different premium types and product categories.
General insurers face a different transition. Their EoM calculation would move from Gross Written Premium to domestic Gross Direct Premium Income, changing both the measurement base and the permitted expense level.
Current rules limit general insurance EoM to 30% of gross premium written in India. Under the new proposal, the ceiling would progressively decline to 20% of domestic GDPI within five years.
IRDAI expects lower EoM limits to reduce the amount of premium absorbed by distribution and operating costs. In general insurance, the regulator expects lower expenses to leave more premium available for risk coverage, while life savings products would direct a larger proportion toward policyholder value.
The commission framework would operate alongside those tighter company-level expense limits. Insurers would retain some flexibility in determining how much distributors receive, but product-level remuneration would increasingly depend on the work involved rather than the distribution partner’s bargaining strength alone.
IRDAI also proposes allowing additional rewards for distributors serving underserved regions, including rural areas and smaller towns. The structure seeks to preserve an economic reason to distribute insurance where acquisition and servicing costs remain higher.
Digital distribution forms another part of the redesign. IRDAI identifies Market Infrastructure Institutions as pull-based digital channels where customers initiate insurance purchases rather than relying entirely on commissioned sellers.
Bima Sugam fits within this infrastructure model, while the proposed Public Insurance Registry would support policy comparison, portability, transparency and administration across the insurance market.
The proposed framework therefore changes both how insurance reaches customers and how distributors get paid. Lower expense ceilings place pressure on insurer cost structures, while commission disclosure and seller-level accountability increase scrutiny of individual sales.
Banks, NBFCs and other large distributors face some of the largest commercial changes.
Restrictions on incentive-linked remuneration, broader commission definitions and lower product-level payouts would reduce several revenue streams currently associated with insurance distribution.
The reforms remain proposals rather than final regulations. IRDAI has invited public and industry comments through October 25, 2026, before deciding how the new distribution, expense and conduct rules will operate.
