India proposes targeted reforms to insurance distribution to cut costs and curb mis-selling

The Insurance Regulatory and Development Authority of India is consulting on a new framework that aims to realign commission structures, reduce distribution costs, and improve transparency, potentially transforming how insurers sell policies and benefit consumers.

India’s insurance regulator is weighing a broad reset of how insurers pay agents, brokers, banks and other distributors, in a move that could reshape one of the industry’s most important cost lines. According to the consultation paper, “Recalibrating Economics of Insurance Distribution”, the Insurance Regulatory and Development Authority of India wants to lower distribution costs, improve transparency and push more value back to policyholders. The regulator is taking comments on the draft until October 25, 2026.

The proposed framework would replace broad, one-size-fits-all limits with caps that vary by product, sales channel and the amount of work involved in selling the policy. That means commission limits would differ depending on whether the policy is life, health or another type of cover, as well as whether it is sold by an agent, a broker, a bank or another intermediary. The New Indian Express reported that the regulator wants to tie these limits more closely to product complexity and acquisition effort, rather than allowing a single ceiling across the sector.

For life insurance, the draft suggests a phased reduction in insurers’ expenses of management, or EoM, the industry term for the money firms spend running and distributing policies. Under the proposal, life insurers would have to bring EoM down to 15% of gross direct premium income within two years, and to 12.5% within five years. For general insurers, the cap would move from 30% of gross written premium to 20% of domestic gross direct premium income over five years, according to reporting by The New Indian Express and IMVC. The idea is to force a leaner cost structure, although the regulator is not saying premiums will automatically fall.

The changes also appear designed to curb mis-selling. LiveMint reported that IRDAI is considering staggered commission payments across the life of a policy instead of large upfront payouts, alongside stricter disclosure rules and clawbacks where a sale is later found to have been improper. That could make distributors more accountable for the quality of the policies they sell, not just the volume they place. The draft also appears to target the practice of tying insurance to loans, with tighter rules around mandatory bundling and more emphasis on customer choice.

The industry impact could be significant. Commissions remain a major revenue stream for banks, brokers and agents, so lower caps may force distributors to rethink which products they push and how much they spend on customer acquisition. Business Standard has reported that some industry representatives expect short-term disruption to existing sales models, even if the changes improve the economics of new business over time. Smaller insurers, in particular, may struggle if they rely heavily on third-party channels while larger rivals have stronger in-house distribution networks.

For policyholders, the promise is not instant price cuts but potentially better value, clearer disclosures and fewer incentives that reward mis-selling. Insurers may pass on some savings through lower costs, but they could also use the money to invest in technology, service or claims handling instead. For now, the proposals remain open to consultation, and the final rules may differ materially once the regulator has reviewed feedback from insurers, distributors and other stakeholders.