India’s insurance regulator, IRDAI, has unveiled a controversial plan to tighten controls on agent commissions and management expenses, sparking a fierce debate between consumer advocates and industry players over the future of insurance distribution and customer protection.
India’s insurance regulator is weighing a sharp overhaul of how insurers pay the people who sell their products, in a move that has opened a fault line between consumer advocates and the industry.
The Insurance Regulatory and Development Authority of India, or IRDAI, has proposed tighter controls on commissions paid to agents, brokers and other distributors, alongside phased cuts in insurers’ expenses of management, known as EoM. According to the consultation paper, the aim is to curb mis-selling, improve policy persistence and force the industry to focus more on customer outcomes than on upfront sales incentives.
The proposed changes go beyond a simple cap on commissions. The regulator wants product-specific limits, different treatment for various distribution channels and closer scrutiny of how policies are sold and serviced. Business Standard reported that life insurers would be required to reduce company-level EoM to 15% of gross direct premium income within two years and 12.5% within five, while general insurers would eventually face a 20% ceiling. The New Indian Express said the paper also sketches steep reductions in product-wise commissions, including lower rates for term, health, motor and savings plans.
That has triggered a strong response from the industry. Brokers and intermediaries argue that distribution is not a uniform business and that the cost of advice, compliance and servicing varies widely by channel. Mahavir Chopra, co-founder of the insurtech platform Beshak, told India Today that a broker who spends time comparing products, explaining exclusions and helping with claims performs a very different function from someone who simply completes a transaction. He wants remuneration to be linked more closely to product complexity, service quality and post-sale outcomes such as persistency and complaints.
Consumer advocates, however, say the regulator is finally confronting a system that has rewarded volume over suitability. Monika Halan, a financial educator and author, told India Today that the proposal marks a shift towards putting policyholders at the centre of regulation. She argued that the existing structure has allowed commissions and costs to rise while mis-selling complaints and unresolved claim disputes have continued to mount.
The debate is also about timing. Chopra says distributors will need a transition period to rebuild business models and invest in technology. Halan says the industry has already had enough time and that the sector should be capable of adjusting far more quickly. IRDAI’s paper envisages a phased reduction in operating costs over several years, but critics of the long runway argue that a slower timetable risks prolonging the very incentives the regulator says it wants to dismantle.
Pushback has already reached New Delhi. The Insurance Brokers Association of India has written to Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman, seeking intervention. The association supports some parts of the draft, including stronger suitability rules, bans on compulsory insurance bundling with loans and clawbacks of commissions in proven mis-selling cases, but it opposes the proposed commission caps and stricter expense limits. It says the changes could threaten livelihoods, especially in smaller towns, and should not be introduced before a proper regulatory impact assessment.
The consumer side of the argument is difficult to ignore. India Today’s reporting has documented cases in which bank staff or distributors sold policies to customers who did not fully understand what they were buying, only for those policyholders to struggle later when they needed help or tried to make a claim. That is why some consumer representatives say the issue is not just what happens at the point of sale, but whether the industry takes responsibility after the policy is issued.
Shilpa Arora, co-founder and chief operating officer of Insurance Samadhan, told India Today that accountability should extend beyond the sale itself. She wants a clear servicing responsibility for the life of the policy so that customers know who is answerable if the original seller leaves, changes role or becomes unavailable. In her view, penalising a distributor after the fact does not automatically fix an unsuitable policy, restore lost cover or settle a valid claim.
Others argue the regulator must recognise the economic reality of brokerage and advisory businesses. KC Haridas, an insurance expert and composite broker, told India Today that brokers carry heavier compliance, staffing and technology costs than agents and should not be treated as though they operate under the same model. At the same time, he acknowledged that mis-selling remains a serious issue, particularly in bancassurance, where insurance is often sold alongside loans and may leave customers underinsured.
The wider question is whether lower commissions will actually translate into cheaper or better insurance for consumers. IRDAI appears to believe that lower distribution costs should eventually feed through into fairer pricing, stronger servicing and better claims behaviour. Yet India Today noted that in health insurance, the final cost of a policy is also shaped by hospital bills, treatment inflation and claim volumes, which means commission cuts alone will not solve affordability pressures.
The consultation paper also points to broader reforms, including greater visibility of distributor performance, commission clawbacks for mis-selling, a “Know Your Distributor” function and a public insurance registry. Reuters-style concerns from consumer advocates suggest that these measures could make it easier for buyers to judge who they are dealing with and how that distributor has performed over time. For now, the consultation remains open for feedback until 25 October 2026, and the final shape of the rules may yet change.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
