The Insurance Regulatory and Development Authority of India has unveiled a comprehensive plan to reduce operating expenses, overhaul commission structures, and enhance transparency in insurance practices, signalling a major shift in industry regulation.
The Insurance Regulatory and Development Authority of India has set out one of its most far-reaching attempts yet to reshape the economics of selling insurance, proposing tighter limits on operating costs, new commission caps and sharper curbs on practices it says can distort distribution and mis-selling.
In a consultation paper released on Wednesday, the regulator proposed a phased reduction in expenses of management, or EoM, for insurers. Life insurers would be expected to bring company-level EoM down to 15% of gross direct premium income within two years and to 12.5% within five years. For general insurers, the benchmark would shift from gross written premium to domestic gross direct premium income, with the cap reduced from 30% to 20% over five years. The paper also says firms already operating below the proposed thresholds would be pushed further towards a long-term sector goal of 10% for life insurers and 20% for general insurers.
The regulator said the aim is to lower insurance costs, widen the pool of risk in general insurance and improve returns to policyholders in life savings products. The proposals build on a framework introduced in 2024, when Irdai moved away from product-wise commission caps towards a board-approved overall expenses ceiling, giving insurers more flexibility on paper while keeping the total cost of doing business under scrutiny, according to the 2024 master circular on expenses of management.
Alongside the cost cuts, Irdai has proposed a new commission regime that would vary by product type, distribution channel, complexity and the effort involved in sales and servicing. For individual non-linked and linked products, intermediary commissions would generally range from 5% to 20%, while agents would be eligible for 6.25% to 25%, depending on the premium payment term. For pure-term life cover, the first-year commission would be 25% for intermediaries and 30% for agents, with renewal commissions of 7.5% and 10% respectively. Single-premium savings products would attract far lower payouts, with commissions of around 1% to 2%, while single-premium pure-term products would carry commissions of 7.5% to 10%.
In general insurance, the consultation paper is even more restrictive in some lines. Commission on motor third-party cover would be set at zero for distributors, although agents and associates would still be allowed 2.5%. For motor own-damage, personal accident and legal liability cover on new vehicles, the proposed rates are 5% for intermediaries and 10% for agents and associates. In health insurance, first-time sales of individual policies would attract commissions of about 15% for distribution entities and 20% for agents, with renewal commissions at 5% and 10% respectively. Irdai also said products sold in underserved areas could qualify for additional rewards, reflecting a push to preserve access where distribution is harder and more expensive.
The wider package goes beyond commission ceilings. The regulator has proposed cutting the fee insurers pay it from 0.05% of premium to 0.04%, subject to a cap of Rs 20 crore. It also wants insurers and large distributors to publish their remuneration policies in simple language, to make cost audits mandatory for all insurer expenses, including intermediary payouts and non-cash incentives, and to extend audits to distribution entities with insurance-related revenue above Rs 100 crore. To tackle mis-selling, the paper would prohibit compulsory bundling of insurance with credit or loans, ban volume-linked or reward-linked incentives for bank and non-bank finance company staff selling insurance, and allow commissions to be clawed back where mis-selling is proved. It also proposes linking an individual’s identity to the policy sold and placing mis-selling incidents in the public domain. The consultation remains open for comments until 25 October 2026, and comes as Irdai has already taken a harder line on companies that breach expense limits, including recent restrictions on several life and non-life insurers.
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