India’s insurance regulator, IRDAI, has unveiled a comprehensive plan to cap commissions, tighten expense controls, and curb sales practices, potentially transforming how policies are sold amid market upheaval.
India’s insurance regulator has proposed a sweeping reset of how policies are sold and paid for, in a move that could reshape the economics of bancassurance, dealer-linked insurance and individual agent channels. The Insurance Regulatory and Development Authority of India said commissions and distribution expenses have been rising faster than premiums, and it has opened the draft rules for comment until 25 October. The consultation paper also seeks to reduce conflicts of interest that can arise when lenders, vehicle dealers and other intermediaries are paid more for pushing particular products than for matching customers with suitable cover.
At the centre of the plan are caps on commissions and a shift towards a more tightly controlled expense model for insurers. According to the draft, life insurers would move to a company-level expense limit tied to gross direct premium income, or GDPI, with the ceiling gradually reduced to 15% within two years and 12.5% within five. For general insurers, the regulator wants to move from gross written premium to domestic GDPI and phase the expense cap down to 20% over five years. Market reports said the measures triggered heavy selling in insurance stocks, with some shares falling sharply after the announcement.
The regulator is also targeting sales practices it says contribute to poor policy retention and mis-selling. In the consultation paper, IRDAI said mis-selling was a key factor behind early surrender of life policies and proposed a clawback of commission where a policy is later found to have been sold improperly. It also wants insurers and distributors to document customer needs and suitability, disclose product and pricing information more clearly and make mis-selling data public. Additional proposals include banning volume-based or reward-based incentives for bank and non-bank finance company employees who sell insurance.
A separate part of the draft would curb forced bundling of insurance with loans and other financial products. IRDAI said lenders should not require borrowers to buy insurance as a condition for getting credit, although it left room for arrangements where a customer receives a demonstrable benefit, such as a lower interest rate in return for extra protection. The regulator also wants to change motor insurance distribution, including limiting commissions on mandatory third-party cover for new vehicles and preventing dealers from withholding cashless repairs simply because a customer bought insurance elsewhere. Lawyers and analysts said the changes could pressure revenue at banks, non-bank lenders, agents and auto dealers, while encouraging them to focus more on servicing, renewals and compliant value-added support.
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