IRDAI's 'Recalibrating Economics of Insurance Distribution' Paper: Lower Expense Limits, Differentiated Commissions and a Three-Tier Distributor Structure, With Comments Due October 25

India's insurance regulator has asked the industry how much it should cost to sell insurance, and the answer it is floating would reshape the business. A public consultation paper from the Insurance Regulatory and Development Authority of India, titled "Recalibrating Economics of Insurance Distribution", is open for comment until October 25, 2026. The SCC Online blog, which summarised the paper on October 23, links its stated aims to the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025: expanding insurance penetration, improving affordability, reducing distribution costs, promoting competition, improving transparency and bringing more uninsured citizens into the system. The blog gives September 23, 2026 as the paper's date, and IANS also says it was released in September. The details below come from these secondary summaries, because the paper itself could not be opened when this article was prepared, and the paper is the authoritative source.

The first proposal is structural. Today, distribution is fragmented across agents, brokers, banks, corporate agents, web aggregators and others, each under different rules. The paper would replace this with three categories: Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions. It applies a principle of "same structure, same functions, same norms", so that similar entities fall under one framework. It would simplify registration, lower entry barriers, reduce capital requirements and lower regulatory fees for distribution entities, and it would let distributors undertake other financial and non-financial activities. It also seeks clearer lines between open and closed distribution architectures to promote competition and reduce regulatory arbitrage.

The second is the expense of management, the cap on how much of premium an insurer may spend on running costs including commissions. For life insurers, the limit would be linked to gross direct premium income and reduced to 15% within two years and 12.5% within five. For general insurers, the basis would shift from gross written premium to domestic gross direct premium income, and the limit would fall from 30% of gross written premium to 20% of gross direct premium income within five years. Insurers would also pay lower regulatory fees. The stated rationale is that lower costs could improve affordability and raise policyholder returns on savings-linked life products.

The third is commissions. The paper does not propose one uniform structure. Commissions could vary by product complexity, distribution channel, line of business, segment and the effort involved in selling and servicing, and additional rewards could be allowed for selling in under-served rural and smaller urban markets. It proposes cost audits and safeguards against indirect payments, and says insurers and large distribution entities may have to publish their commission policies in a simple form so customers can see the distribution cost built into premiums.

The fourth is conduct. Distributors would document customer needs and suitability, direct and indirect remuneration would both count as commission, each policy sale would be linked to the individual seller, and mis-selling incidents would be publicly reported. The paper introduces commission claw-back where mis-selling occurs, and restricts volume-linked and reward-linked incentives for bank and non-bank finance company employees who sell insurance. The fifth is digital: the paper recognises Market Infrastructure Institutions as digital, pull-based distribution platforms, names Bima Sugam as one such institution, and proposes greater use of the Public Insurance Registry for transparency, portability and comparison.

Beyond these headline items, Whalesbook reported on October 19 that the draft would strictly cap distribution expenses on credit life insurance, with first-year commissions that can reach 14% and renewal commissions up to 38% limited to 2.5% and 1%. That figure does not appear in the SCC Online summary, which gives no specific commission percentages, so it should be treated as one report's reading until checked against the paper. The same report said ICICI Prudential Life and HDFC Life are reviewing their business models, that many private insurers depend heavily on bancassurance and are expanding direct, digital and agency channels, and that in-house channels usually bring higher fixed costs for staff and infrastructure in exchange for lower variable commissions. It cited no named analysts and did not quantify the effect on margins.

The industry has pushed back and asked for time. IANS reported on October 22, citing NDTV Profit and unnamed sources, that IRDAI has not made a final decision on extending the deadline and is reviewing representations, and could grant extensions in select cases. IRDAI Chairman Ajay Seth said earlier this month that the authority was open to modifying the framework based on feedback, including possibly phasing in commission-related reforms. The Insurance Brokers Association of India met senior IRDAI officials last week and asked for more time. The same report said the proposed reforms are slated to take effect on January 1, 2027, that brokers and digital intermediaries reacted sharply, and that shares of listed insurance distributors fell heavily after the paper came out, with PB Fintech, the parent of Policybazaar, seeing a steep drop. Those market details come from unconfirmed sources in a syndicated report and are not quantified.

For customers, the potential benefits are lower premiums or higher returns and clearer disclosure of what part of a premium goes to the seller. The risks are less obvious. Lower commissions can reduce the incentive to sell protection products in smaller towns, where distribution is hardest, which is why the paper includes extra rewards for under-served areas. Whether the final rules change the economics of bank-led and online sales will depend on how the caps, phasing and exceptions are set.

For now the paper is a proposal. The comment window closes on October 25, any extension has not been confirmed, no date has been published for final guidelines, and the details above come from summaries of the paper rather than the paper itself. Readers who sell or buy insurance in India should watch for IRDAI's announcement on the deadline and for any revised draft.