India’s insurance regulator is proposing tighter controls on commissions, loan-linked policies and claims transparency, with reforms potentially taking effect from 2027.
India’s insurance regulator is preparing a sharper intervention in how policies are sold, priced and paid out, with chairman Ajay Seth saying the aim is to curb mis-selling and make the market work more clearly for policyholders. In an interview with businessline, Seth said the Insurance Regulatory and Development Authority of India is moving towards a framework that ties part of distributor compensation to how long a policy stays in force, while also barring the bundling of loans with insurance. He added that in health cover, the regulator is looking beyond headline claim-settlement ratios and watching how much insurers actually pay out.
The consultation paper at the centre of the reform push, titled “Recalibrating Economics of Insurance Distribution”, has drawn active responses from insurers, distributors and industry bodies, according to businessline. Seth said comments remain open until October 25 and that the regulator will examine submissions that are backed by data and sound economic reasoning before issuing draft regulations for another round of public consultation. Livemint reported that the proposals are meant to improve value for policyholders by reducing costs, strengthening service and discouraging practices that reward sales volume over long-term suitability.
Seth argued that the current system gave too much room for commissions and add-ons, and too little incentive for policies to persist. According to his remarks to businessline, first-year commission can rise as high as 40% to 50%, while rewards on top of base commission have often lifted payouts by 30% to 60%. He said that, under the 2023 framework, flexibility was meant to pass savings to customers, but instead it largely flowed to intermediaries. Nation Press said the regulator’s consultation paper also points to a jump in distributor remuneration far ahead of premium growth, reinforcing the case for tighter controls on expense management and distribution economics.
The regulator is also seeking to make sales conduct more traceable. Seth said each policy should be linked to the person who sold it, with a formal record of whether the product matched the customer’s needs. Where mis-selling is proved, he said, the commission would be clawed back, the premium would be returned to the policyholder and the insurer and distribution entity would share responsibility. Livemint has separately reported that IRDAI has already moved to tag policies to individual sellers from January 2027, a step intended to improve accountability across the distribution chain.
On health insurance, Seth said premium increases cannot be explained by medical inflation alone, because claims experience is shaped not only by hospital charges but also by insurers’ own operating and distribution costs. Businessline reported that IRDAI and the Confederation of Indian Industry have set up joint working groups with healthcare providers to study claims, medical inflation and other structural issues. Seth also said grievances in general insurance, especially around claims, remain a concern, and that the regulator is working on process reforms, greater transparency and a Public Insurance Registry that would allow consumers to compare premium revisions and claims histories before buying.
Those changes are not expected overnight. Seth said the consultation process will be followed by draft regulations and then a final notification, with implementation being considered for either 1 January 2027 or 1 April 2027. He added that expense limits would be introduced through a phased glide path to give insurers time to adjust. The broader message from the regulator is that cheaper products, better buying practices and stronger claims performance must move together if the industry is to regain trust.
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