IRDAI Insurance Distribution Consultation: Commission and Expense Proposals Explained

The direct answer: this is a consultation, not a new insurance rule

The IRDAI insurance distribution consultation sets out a proposed reset of how insurance is sold, paid for and compared in India. Released on 23 September 2026 as “Recalibrating Economics of Insurance Distribution”, it covers distributor categories, insurer expenses, commissions, transparency, market conduct and digital infrastructure. Its stated aim is a more customer-centric, competitive and efficient distribution system. None of the measures is in force merely because the paper has been published.

That distinction matters for policyholders. The paper does not automatically reduce a premium, rewrite an existing policy, alter a claim decision or remove an agent or broker from a transaction. It is an invitation for comments on IRDAI’s diagnosis and possible regulatory response. IRDAI says comments may be submitted through its web consultation process using the prescribed Excel template or by email, with 25 October 2026 as the deadline.

Why IRDAI is focusing on distribution economics

Insurance distribution includes the work and cost of reaching customers, explaining and servicing policies, and paying intermediaries. The consultation argues that costs and commissions have risen under the recent flexible framework and that the current structure is fragmented. It points to variation by insurer, product and channel, and says that incentives can become misaligned with policyholder value. These are the regulator’s findings and rationale for seeking views; they are not a finding about every insurer, distributor or individual sale.

Part 2 of the paper illustrates the concern with sector-level data. It says that, excluding the two largest insurers, commissions for life insurers stood at 10% of total premium procured in FY26; excluding the largest insurer, the comparable general-insurance figure was 17%. It also reports large ranges in commissions. The significance of the data is not that a customer can calculate a personal premium change from it, but that IRDAI sees a case for a tighter, more transparent framework.

EoM limits: the proposed five-year expense path

Expense of Management, or EoM, is the overall cost framework for insurers. It includes gross commissions and other operating expenses; it is not a standalone charge that a policyholder pays as a separate bill. IRDAI proposes to calculate EoM using gross expenses as a percentage of Gross Direct Premium Income, or GDPI, in India for general insurance, rather than Gross Written Premium. The proposal also addresses the treatment of certain reinsurance-related payments.

For life insurers, the proposal is to reach EoM of 15% of premium in two years and 12.5% in five years, with FY2027–28 described as year one and an annual reduction path. Life insurers already below the benchmark in FY25 would be expected to reach 10% in five years. For general insurers, the proposed path is 25% in two years and 20% in five years; those already below the benchmark in FY25 would reach 20% in five years. These are proposed ceilings and transition targets, not confirmed future premium reductions.

Commission caps would be product- and channel-specific

IRDAI proposes a return to hard maximum commission limits within the revised EoM framework. The central point is not one universal percentage. The consultation says proposed limits should take account of the insurance segment, line of business, distribution channel, product complexity and the effort required to sell and service the policy. It also sets out different proposed treatment for business in smaller towns and rural areas.

The draft tables show why shorthand headlines can mislead. For individual non-linked and linked life policies, proposed first-year commission for distribution entities ranges from 5% for a premium-payment term below five years to 20% for 10 years and above; the corresponding agent limits shown are 6.25% to 25%. There are separate rates for renewals, pure term, annuity and group products. In motor insurance, the table proposes nil commission for a distribution entity on third-party cover, while agents and associates would have a 2.5% proposed limit. These are draft ceilings for defined categories, not a statement that every policy will carry those payments.

What the consumer-protection proposals could change

Several measures target the quality of a sale rather than only its cost. The consultation proposes that insurers and insurance distribution entities maintain detailed suitability frameworks. For life sales above a defined ticket size, a documented needs and suitability assessment with an audit trail would be mandatory. If a customer chooses a product other than the recommended one, the reason would need to be recorded. The paper says a signature alone should not remove responsibility for an unsuitable sale.

IRDAI also proposes to treat direct and indirect, monetary and non-monetary remuneration as commission for regulatory purposes. It proposes prohibiting volume-linked or reward-linked incentives for bank and NBFC staff selling insurance, tagging the relevant salesperson or point of sale to a policy, publishing information on mis-selling incidents and allowing commission claw-back in such cases. These are proposed accountability tools; they do not determine the facts of any particular complaint.

On information access, the consultation proposes standard product, price and performance disclosures without asking a visitor to leave a name, phone number, email or other personal detail. It would prohibit “dark patterns” in insurance regulation and calls for one-page product information sheets and FAQs. It also proposes a verified contact between insurer and customer before policy issuance, with measures such as OTP verification contemplated. Final rules would need to specify the exact process and exceptions.

Loan-linked cover and motor insurance are two specific focus areas

The proposal would prohibit banks and NBFCs registered as insurance distribution entities from compulsorily bundling insurance with their products or services. In the consultation’s example, a borrower should not have to buy a specified insurance product as a condition of receiving a loan. The paper distinguishes that from a package with specific, demonstrable customer benefit. For a loan-rate concession linked to insurance protection, it proposes disclosure of the rate with and without the protection, no requirement to buy the cover from that lender, and separate direct payment of the premium by the customer.

Motor insurance receives dedicated attention because IRDAI says commissions are high despite mandatory third-party cover and relatively simple sales in some cases. The paper proposes lower commissions for mandatory third-party cover and easy-to-sell cover for new vehicles. It would require qualifying motor dealers to register as distribution entities if they sell insurance, display an option and QR code for an MII platform, and make customers aware of that option. It also proposes that a dealer must not deny cashless repairs because a policy was bought elsewhere.

These provisions should not be read as a conclusion that every loan-linked or motor sale is improper, nor as a current entitlement created by the consultation. They describe proposed norms and examples on which IRDAI is seeking feedback. A borrower or vehicle owner should continue to rely on the applicable policy, loan and insurer documents until any final regulations are notified.

Bima Sugam, the Public Insurance Registry and the three proposed categories

The distribution architecture proposal groups the current complex set of players into three broad categories: Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs). IRDAI describes this as a “same structure, same functions, same norms” approach. It proposes simpler registration and lower entry and capital requirements in some cases, while retaining obligations tailored to the role performed.

MIIs are proposed as digital, pull-based alternatives to traditional selling channels. The paper identifies Bima Sugam as one such insurance MII and describes it as a platform being established by the Bima Sugam India Federation. It envisages MIIs operating as cost-effective, neutral and not-for-profit platforms where insurers can compete on product features, price, claims service and grievance redressal. The consultation also describes the proposed Public Insurance Registry, or PIR, as business-facing digital infrastructure that can enable discovery and verification of insurance information.

What happens next—and how to interpret the proposals responsibly

IRDAI has invited feedback on the problems identified, strategic objectives, measures and implementation. The deadline is 25 October 2026. Stakeholders may support a proposal, ask for a different transition period, identify operational issues or challenge a data assumption. The regulator may then revise, defer, split or not proceed with individual measures. A consultation paper is evidence of a regulatory process, not proof of the final rulebook.

For readers reviewing an insurance offer now, the immediate checks remain basic: identify who is selling the policy, read the product wording and premium-payment obligations, understand exclusions and service conditions, and keep a record of representations made. Where a policy is presented with a loan or another financial product, compare the written conditions and ask whether there is a choice of insurer or purchase route. Those steps are general consumer due diligence, not a recommendation to purchase, cancel or switch any insurance product.