IRDAI proposes sweeping overhaul of insurance distribution, stocks dive

India’s insurance regulator has proposed a broad rewrite of the way insurance is sold, including tighter commission limits, lower expense caps and restrictions on bundling policies with loans, sending shares of some of the country’s biggest insurance distributors sharply lower on Thursday, 24 September.

The Insurance Regulatory and Development Authority of India (IRDAI) released a two-part consultation paper, titled Recalibrating Economics of Insurance Distribution on Wednesday, 23 September, arguing that commissions and distribution costs have risen much faster than the premiums they generate.

The proposals are not final regulations. IRDAI has sought public and industry comments until 25 October.

At the center of the consultation is a possible return to firm limits on commissions following the relaxation of commission caps in 2023.

IRDAI said remuneration to distributors has risen disproportionately since then.

Among a sample of corporate agents, life-insurance new business premiums increased about 28% between fiscal 2023 and fiscal 2025, from roughly ₹63,000 crore to ₹80,000 crore. Distributor remuneration, including commissions, rewards and incentives, rose 125% over the same period, from ₹9,580 crore to ₹21,600 crore, according to data in the consultation paper.

General-insurance broker commissions rose 173% during the period, while premiums routed through them increased 37%.

IRDAI is proposing to link allowed commissions more closely to the complexity of a product, the work required to sell and service it, and the distribution channel used.

That could alter the economics of online aggregators, insurance brokers, banks and non-bank lenders that earn significant fees from selling policies.

For individual health insurance, proposed commissions on first-time sales are capped at 15% for distribution entities and 20% for agents, while renewal and portability commissions would be limited to 5% and 10%, respectively.

For individual life-insurance savings products, first-year commissions would vary according to the premium-payment term. They could rise to 20% for distribution entities and 25% for individual agents where premiums are paid for 10 years or more, with substantially lower caps on shorter-duration products.

Pure-term insurance would be treated differently. For policies with multi-year premiums, first-year commissions could be capped at 25% for distribution entities and 30% for agents, followed by lower renewal commissions.

The regulator is also proposing tighter limits on the expenses insurers themselves can incur.

For life insurers, IRDAI proposes moving to a company-level Expense of Management ceiling equal to 15% of gross direct premium income within two years and 12.5% within five years. Life insurers already operating below the proposed benchmark in fiscal 2025 would be expected to move toward 10% within five years, which the regulator has identified as a longer-term sector goal.

For general insurers, the expense measure would shift from gross written premium to domestic gross direct premium income, with the ceiling declining from 30% to 20% over five years.

Banks and lenders face another potentially important change.

The proposals seek to prohibit compulsory bundling of insurance with loans and other credit products and impose much lower commission ceilings on some policies sold alongside lending products.

IRDAI has also proposed banning volume-linked or reward-linked incentives for employees of banks and non-bank financial companies selling insurance.

The regulator wants to simplify the current assortment of intermediary classifications into three broad groups: Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions.

Its consumer-protection proposals include restrictions on digital “dark patterns,” including requiring people to provide phone numbers or other personal details before they can see product features and prices.

Insurance websites would instead have to make basic pricing and product information accessible without forcing prospective customers to surrender personal information first.

IRDAI also wants greater accountability for mis-selling. Its proposals include identifying the person responsible for individual sales, maintaining stronger sales records and allowing commissions to be clawed back in cases of mis-selling.

Cost audits would become mandatory for insurers, while large insurance distribution entities with more than ₹100 crore in insurance-related revenue would also face audit requirements.

Digital infrastructure including Bima Sugam and the proposed Public Insurance Registry would meanwhile be used to give customers more direct ways of comparing, purchasing and servicing insurance.

The scale of the proposed changes jolted the stock market.

PB Fintech, the parent of Policybazaar, fell as much as 23% on Thursday in its steepest intraday decline since listing, while Turtlemint was locked around its 20% lower circuit as investors assessed what lower commissions could mean for their business models.

Insurance companies were also hit. HDFC Life fell as much as 8.5%, while ICICI Prudential Life, SBI Life, ICICI Lombard and Life Insurance Corporation of India were among other insurers trading lower.

The selling also spread to banks and non-bank financial companies because bancassurance and loan-linked insurance can generate meaningful fee income.

Axis Bank and HDFC Bank were among the large banks facing pressure, while financial stocks more broadly were also being weighed down by rising global bond yields and crude-oil prices.

Brokerages identified digital insurance distributors as particularly exposed.

Jefferies estimated that a 10% reduction in commission rates could reduce earnings at PB Fintech and Turtlemint by roughly 10% to 12%.

Analysts have also warned that some high-margin loan-linked insurance categories could face considerably steeper reductions in distributor payouts under the proposed framework.