IRDAI Proposes Sweeping Caps on Insurance Commissions as RBI Weighs In

India's insurance regulator has opened one of the most consequential debates in the country's insurance market in years: how much distributors should be paid to sell a policy. The Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper on September 23, 2026, titled Recalibrating Economics of Insurance Distribution, proposing new limits on the commissions insurers pay to agents, banks, corporate agents, brokers and other intermediaries. Comments from the industry and the public are being accepted until October 25, 2026, and the paper is a draft rather than a final rule.

The proposals work on two levels. First, they would set product-level commission ceilings that vary by channel and by how much effort a sale and its servicing involve. As summarised by the financial-education site Finnovate, which has not been checked against the IRDAI paper itself, the draft would cap commissions on an individual health policy at 15% of premium on the first purchase and 5% on renewal or transfer for distribution businesses such as brokers and corporate agents, with higher ceilings of 20% and 10% for individual agents. For individual pure term life insurance, the ceilings would be 25% in the first year and 7.5% on renewal for distribution businesses, and 30% and 10% for agents. Motor insurance would see lower ceilings still, including zero commission on third-party cover for new vehicles sold through distribution businesses. Rewards, gifts and selling-expense reimbursements would count towards the limits.

Second, the paper would lower the expense of management (EoM) limits for insurers. EoM combines commissions with operating costs such as staff, offices and technology, expressed as a share of premium. Under the summary, the limit for life insurers would fall to 15% within two years and 12.5% within five years, and for general insurers to 25% within two years and 20% within five, starting from financial year 2027-28.

The regulator's case rests on figures from the paper as reported by Business Standard. Banks accounted for nearly Rs 68,000 crore of the sampled corporate-agency premium. Banks with multiple insurer tie-ups paid an average commission of about 33% in FY25, compared with about 13% for banks tied to a single insurer. For life insurance, average commissions to agents and corporate agents ranged from 27% to 61% of first-year premium, with the highest at 34% to 92%. Finnovate's summary adds that new-business life premiums sold through corporate agents grew 28% between FY2022-23 and FY2024-25, while payments to sellers grew 125%, and that the average broker commission in general insurance rose from 8.5% to 17%.

The proposals also target how insurance is sold alongside loans. According to Finnovate's summary, banks and non-bank lenders acting as distributors would be barred from compulsorily bundling insurance with a loan, and lenders offering a rate benefit tied to insurance would have to show the rate with and without the cover, with borrowers free to buy the policy elsewhere. The draft would also require clearer one-page disclosures so customers can compare products more easily.

Public reaction from the Reserve Bank of India has been cautious. Speaking at the post-policy press conference on October 7, Governor Sanjay Malhotra said the RBI would firm up its view and send comments to IRDAI. He described the paper as a draft that IRDAI will refine after hearing industry and consumer groups, said the aim is to reduce costs for consumers and curb mis-selling, and said the issue lies within the insurance regulator's remit. He added that the RBI has not yet formed its view.

The sharpest pushback has come from brokers. The Insurance Brokers Association of India estimates a 60 to 70 percent impact on brokers' revenues and warns that nearly one million jobs could be at risk. It has written to the Prime Minister and the Finance Minister asking them to intervene, arguing that distributors bear the costs of acquiring customers, issuing policies, handling renewals and helping with claims, and that deep cuts could hurt insurance reach in smaller towns and rural areas.

Markets reacted quickly. According to Finnovate, on September 24 PB Fintech fell 36% and Turtlemint fell 20%, while HDFC Life dropped 6.2% and ICICI Prudential Life 4.23%. ICICI Lombard and Go Digit gained. Analysts quoted by Business Standard expect a limited effect on banks' overall profitability because bancassurance is a small part of their earnings. IIFL Capital estimates the banking system's bancassurance income pool at about 2.2 billion dollars, growing at 28% a year over three years, contributing about 10% of banks' fee income and nearly 3% of profit after tax. Even so, banks may shift towards products that pay more or push for higher volumes, and insurers may favour group companies where distribution economics are easier to manage.

For consumers, the likely effects are mixed. In principle, lower selling costs leave room for lower premiums, but the draft does not guarantee that savings will be passed on, and health premiums also depend on medical inflation and claims costs. Lower commissions could also change advice. Distributors paid less for complex or long-term products may spend less time explaining them, while stricter limits on commissions for renewals could reduce the incentive to push customers into switching policies. The regulator's stated aim is to align pay with the work done and reduce mis-selling, and that depends heavily on how the final rules are written and enforced.

What to watch next: the October 25 deadline for feedback, any RBI submission on bank distribution, whether IRDAI softens the ceilings for rural and underserved segments, and how insurers respond in pricing. Policyholders do not need to do anything now. If you are buying or renewing a policy, compare the total premium and benefits rather than relying only on an agent's recommendation, and ask whether a lower-commission direct purchase is available.