IRDAI has proposed wide-ranging changes to India’s insurance distribution framework, covering commissions, operating costs, mis-selling, forced bundling and digital access for policyholders.
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a broad overhaul of insurance distribution rules to reduce costs, improve transparency and strengthen policyholder protection.
The regulator released its consultation paper, “Recalibrating Economics of Insurance Distribution”, on September 23. The proposals cover distribution structures, commissions, expenses, market conduct and digital infrastructure. Stakeholders can submit comments until October 25, 2026.
Lower costs and revised insurance commissions
IRDAI has proposed a phased reduction in insurers’ Expenses of Management (EoM). For life insurers, the proposed limit would move to 15% of gross direct premium income within two years and 12.5% within five years. For general insurers, the regulator has proposed shifting the benchmark to domestic GDPI and reducing the limit to 20% over five years.
The regulator also wants to replace a uniform approach to insurance commissions with limits based on product type, distribution channel, policy size, complexity and the effort involved in selling and servicing policies.
Insurers and large distribution entities would need to disclose commission policies and structures in simple language. IRDAI has also proposed treating monetary and non-monetary incentives, awards, reimbursements and other benefits as commission for regulatory purposes.
Stronger safeguards against mis-selling
The proposed insurance reforms also target mis-selling. IRDAI wants insurers to document customer needs and suitability for specified life insurance sales and maintain an audit trail.
The regulator has proposed linking the individual seller’s identity to the policy, publishing relevant mis-selling information and allowing commission clawbacks when mis-selling occurs. It also wants to restrict volume-based and reward-based incentives for bank and NBFC employees selling insurance.
IRDAI has further proposed stronger safeguards against compulsory insurance bundling with loans and other financial products.
Digital insurance access gets a push
The consultation paper proposes Market Infrastructure Institutions as digital, pull-based alternatives for insurance distribution, with Bima Sugam identified as one such infrastructure.
IRDAI has also proposed action against “dark patterns” on insurer websites. Customers should be able to view product features and pricing without first providing personal information, according to the proposal.
The proposed framework aims to make insurance distribution more competitive, transparent and cost-efficient while improving customer choice and accountability. However, the measures remain proposals until IRDAI completes the consultation process and finalises the framework.
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