India’s insurance regulator is proposing to undo one of its most significant recent policy decisions – the 2023 removal of product-level commission caps – after data showed distributor payouts growing at several times the rate of premium income across key business lines.
The Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper in September titled “Recalibrating Economics of Insurance Distribution.” For brokers and agents in the Indian market, its contents carry direct consequences for revenue models and distributor accountability.
When IRDAI removed product-level commission caps in March 2023, it introduced a new commission framework under which insurers set their commission structures through board-approved policies, alongside new Expenses of Management (EoM) regulations. The regulator is now proposing to recalibrate that framework after identifying a sharp divergence between premium growth and distributor remuneration.
The consultation paper’s data makes the case. Between 2022-23 and 2024-25, premiums collected through corporate agents in life insurance grew 28%, while distributor payouts grew 125%. In general insurance, broker premiums rose 37% against a 173% increase in commission payouts. Motor insurance showed the widest gap: premiums grew around 34% while commissions grew around 259%.
IRDAI chairman Ajay Seth addressed the problem directly in an interview with the Economic Times. "Mis-selling is arising because upfront commissions are too high," he said.
Monika Halan, a member of IRDA’s Insurance Advisory Committee, writing in an opinion piece in the Hindustan Times, put the development in historical context. “IRDAI seems to have functioned more like an industry association than a regulator,” she wrote. “So, to see a consultation paper from the regulator blowing the lid off unwarranted industry practices is quite surreal.”
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According to Akashvani News, India’s government public broadcaster, the paper proposes reintroducing hard commission caps alongside tighter EoM limits, while restructuring remuneration to reward persistency and renewals over upfront sales volume.
For life insurers, the EoM ceiling is proposed at 15% of Gross Direct Premium Income (GDPI) within two years and 12.5% within five. For general insurers, the limit would decline from 30% of Gross Written Premium to 20% of domestic GDPI within five years.
The proposed maximum commission of 25% drew comment from Halan, who wrote it “still looks too high, but is a step in the right direction.”
Beyond rate caps, the proposals include mandatory commission disclosure, the tagging of each selling intermediary’s identity to their policies, and a formal regulatory definition of mis-selling. Selling a regular premium policy as a single premium product, or not disclosing early-exit costs, are cited as examples in the paper.
The tagging proposal has direct liability implications. Where a policy is later classified as a mis-sale, accountability falls on the named distributor – a change with no equivalent under the current framework.
Seth described the reform’s broader intent in an interview with a business news channel, as reported by the Deccan Chronicle: “This entire exercise is intended to ensure that the public and policyholders benefit. For a life insurance savings product, the outcome should be better returns. In general insurance, it should result in better claim ratios.”
The commission data sits against a deteriorating set of market indicators that give the proposals their urgency.
According to the Press Information Bureau, citing IRDAI’s 2024–25 annual report, India’s insurance penetration remained at 3.7% in FY25, unchanged from FY24. Life insurance penetration declined from 2.8% to 2.7%, while non-life penetration remained at 1%.
Surrender and withdrawal payouts accounted for 39% of total life insurance benefits paid in FY26, up from 32% in FY22, according to data presented by the Ministry of Finance to the Lok Sabha. They also overtook maturity payouts, which accounted for 37% of benefits in FY26.
The ministry said IRDAI had identified several factors influencing surrenders and early exits, including product suitability, affordability, policyholder expectations, mis-selling, lack of awareness, and changes in financial circumstances.
India is not alone in tightening distributor pay structures.
In July 2025, the Hong Kong Insurance Authority (IA) issued a Practice Note requiring that no more than 70% of total commission on long-term participating policies be paid in the first policy year, with the remainder spread evenly over at least five years. The rule took effect January 1, 2026, and applies to all licensed intermediaries including broker companies, according to an analysis by DLA Piper.
In Singapore, the Monetary Authority of Singapore’s (MAS) Balanced Scorecard Framework – updated in December 2025 – requires financial advisory firms to assess representatives on non-sales indicators including product suitability and quality of disclosure, with commission payments linked to those assessments rather than sales volume alone.
Both frameworks share the same direction as IRDAI’s proposals: tying distributor pay to policyholder outcomes rather than transaction counts.
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Industry opposition is already forming. Halan warned of the likely response: “The ultimate trump card will be used: the argument that this will put policyholders at risk, thanks to the changes making business unsustainable.”
The consultation is open for submissions until October 25, 2026. Seth has said the new framework would take effect on either January 1 or April 1, 2027, pending consultation outcomes, as reported by the Deccan Chronicle.
Seth has also described the distribution paper as phase one of a broader reform agenda, with changes to claims management, grievance redressal, and product regulation to follow in the next financial year.
