India’s insurance regulator has proposed a simplified distribution structure, tighter commission and incentive rules, and lower expense limits in a bid to cut costs, curb mis-selling and expand coverage.
India’s insurance regulator has set out an ambitious plan to remake how policies are sold, priced and supervised, signalling a shift towards a more tightly monitored distribution model aimed at cutting costs and widening coverage. In a consultation paper issued on 23 September, the Insurance Regulatory and Development Authority of India said the reforms are intended to make insurance more affordable, improve policyholder outcomes and bring more uninsured people into the market. The draft also aligns with the Sabka Bima Sabki Raksha amendments passed in 2025, which were designed to strengthen consumer protection and support sector growth.
At the centre of the proposal is a major simplification of the current intermediary structure. IRDAI wants to replace the fragmented distribution landscape with three broad classes: insurance distribution entities, insurance distribution persons and market infrastructure institutions. According to the consultation paper, the aim is to apply the same rules to firms carrying out similar functions, while also lowering entry barriers, reducing capital requirements and trimming regulatory fees. The regulator is also considering allowing distributors to combine insurance sales with other financial or non-financial activities, a change it says could broaden earning opportunities and spur competition.
The paper also sketches a tougher line on economics and incentives. For life insurers, IRDAI proposes linking the expense of management limit to gross direct premium income and lowering it to 15 per cent within two years and 12.5 per cent within five years. For general insurers, the framework would move away from gross written premium and instead be based on domestic gross direct premium income, with the ceiling eventually falling to 20 per cent over five years. The regulator wants commission structures to vary by product complexity, distribution channel, line of business and the effort required to sell and service each policy, while also allowing additional rewards for sales in underserved rural and smaller urban markets.
Transparency and conduct rules would tighten as well. IRDAI proposes that insurers and large distributors disclose their commission policies in a clear and accessible format, giving customers a better sense of the distribution costs embedded in premiums. The paper also seeks to curb mis-selling through suitability checks, direct linkage between a policy and the individual seller, public reporting of mis-selling incidents and commission claw-back provisions. It further proposes restrictions on volume-based and reward-based incentives for bank and non-banking finance company staff selling insurance, an area long criticised for encouraging aggressive sales practices.
The consultation paper also gives a formal role to digital market infrastructure, including Bima Sugam, as part of a pull-based distribution model in which customers can compare and buy products more directly. IRDAI also wants greater use of the Public Insurance Registry to improve transparency, portability and operational efficiency. The response from markets has been swift, with local reports saying shares of digital insurance platforms and listed insurers fell sharply after the draft was released, underscoring investor concern about the potential hit to economics if the proposals are adopted. Comments on the paper are open until 25 October 2026.
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