India’s insurance regulator, IRDAI, has revealed a comprehensive draft framework aimed at transforming the insurance sales landscape, broadening distributor options, and tightening accountability for mis-selling in a move expected to reshape the industry.
India’s insurance regulator has proposed a major rewrite of how policies are sold, in a move that could reshape the business models of banks, brokers and individual agents while giving consumers a wider range of distributors to choose from. The Insurance Regulatory and Development Authority of India’s draft framework splits the market into Insurance Distribution Entities, or IDEs, and Insurance Distribution Persons, or IDPs, according to Business Today and other sector reports.
Under the proposal, IDEs would cover institutions such as banks, non-banking finance companies, brokers, corporate agents, composite brokers, insurance marketing firms and web aggregators. These entities would be allowed, but not required, to adopt an open architecture, meaning they could sell products from more than one insurer. The draft would also let IDEs offer non-insurance financial products if they secure the necessary regulatory approvals, a change that could broaden income streams and reduce dependence on insurance commissions, according to the reports.
By contrast, IDPs would remain tied to a closed model. These would include insurance agents, insurance associates and Point of Sales Persons, or PoSPs. They would generally be restricted to representing specific insurers, although the framework would allow some flexibility across product lines where there is no direct competition. Business Today said an IDP could work with one life insurer, one general insurer, one health insurer and one insurer in each other mono-line segment, so long as the products do not overlap. PoSPs, meanwhile, would not be able to work with multiple IDEs. Earlier coverage in ET BFSI said the broader overhaul is also designed to simplify registration, standardise rules across similar players and lower barriers to entry.
The draft could also widen the range of businesses that can take part in distribution. According to the reports, hospitals may be able to distribute health insurance if they register as IDEs and meet safeguards, while non-dealer car repair garages could sell motor insurance as associates of an insurer. The framework also introduces Market Infrastructure Institutions, or MIIs, as another part of the ecosystem.
A central theme of the proposal is tougher accountability for mis-selling. IRDAI wants the identity of the person actually selling the policy to be tied more closely to the product itself, so that responsibility is clearer when advice goes wrong. The regulator has cited examples such as marketing insurance as a fixed deposit or high-return investment, presenting a regular-premium policy as if it were a single-premium plan, or failing to explain surrender values and the consequences of stopping payments. According to the reports, customer consent or a signature would not be enough to shield an insurer or intermediary if the product sold was unsuitable.
The regulator is also looking at incentives. Business Today reported that IRDAI wants both monetary and non-monetary rewards to fall within the definition of commission, which could curb volume-based or reward-based payments to bank and NBFC staff selling insurance. For policyholders, the immediate implication is not just a new label for distributors, but a possible change in who can sell what, how competing insurers are represented and how much transparency sits behind the sale. The proposals remain under consultation and are not yet final, so the full effect will depend on the regulations that follow.
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