India’s insurance regulator is preparing its most consequential shake-up of distribution economics in over a decade & the fallout may fall hardest on the smallest, cheapest policies sold in the country’s least penetrated markets.
The Insurance Regulatory and Development Authority of India (IRDAI) is working on a framework that would place a hard cap on commissions earned by intermediaries per policy, layered on top of tighter Expenses of Management (EoM) limits. Sources familiar with the discussions say some of the caps being considered internally could fall in the single-digit percentage range, a dramatic compression from today’s structure, where commissions on certain products run as high as 40-60% of the premium itself.
On paper, the logic is straightforward. Life insurers paid out rs. 60,800 crore in commissions in FY25, an 18% jump year-on-year, even as overall premium growth crawled at a comparatively modest 6.7%. Non-life insurers weren’t far behind, with commission expenses touching rsm 47,266 crore. IRDAI’s stated goal is to ensure a larger share of every premium rupee reaches the policyholder, through better claims servicing, wider coverage and lower pricing, rather than distribution costs.
But industry executives argue that a uniform, one-size-fits-all cap misreads how insurance actually gets sold in India.
The Bengaluru-Marathwada problem
Selling a term policy to a salaried professional through a slick app in a metro city costs a fraction of what it takes to convince a farmer in rural Maharashtra to buy the same cover often over multiple visits, in the local language, with trust built person to person rather than through a push notification. One journey can be automated. The other, industry voices argue, cannot be, not for a generation, at least.
The stakes are significant: roughly 78% of rural India carries no formal insurance cover at all. That gap doesn’t exist because commissions made premiums unaffordable, nothing has been offered to this segment in the first place. Separately, a large majority of rural respondents say they simply cannot buy a policy on their own; they need a person willing to keep showing up, not a discount.
A blunt commission ceiling applied equally across a ₹50,000 urban motor policy and a modest rural micro-insurance cover risks making the latter economically unviable for agents to sell at all, precisely the segment India’s “Insurance for All by 2047” push is supposed to reach.
A cautionary precedent
The industry doesn’t have to speculate about what happens when the money dries up, it has already watched it happen. Turtlemint, one of India’s largest insurance distribution platforms, generated 88% of its revenue in FY23 from “marketing fees” paid by insurers. When IRDAI closed that loophole through revised commission regulations, the company’s revenue collapsed by 81% on a restated basis the following year.
PB Fintech chairman Yashish Dahiya has gone further, warning that the proposed caps could pose an existential threat to distributors like Policybazaar — enough that the company is reportedly evaluating whether to pursue an insurance manufacturing licence of its own rather than remain purely a distribution platform.
Transparency now, caps later
For now, the commission-cap framework itself remains a work in progress. IRDAI’s current consultation draft focuses on a narrower first step: mandatory disclosure. Intermediaries earning more than ₹10 crore in annual commissions would have to publish those earnings, & every policy would be tagged to the individual responsible for the sale, a provision aimed squarely at bancassurance, long regarded as one of the most mis-selling-prone channels in Indian finance.
Industry insiders describe the disclosure draft as barely the opening move. “This consultation draft is not even 1% of what may come up,” one executive said. Feedback on the current round of proposals is due in mid-July, but the harder question, how steep the eventual per-policy cap will be, & whether it will flex by product, geography or effort involved, is still being worked out behind closed doors.
The bigger unresolved question
Critics of the current distribution model argue the deeper issue isn’t commission levels at all, but incentive misalignment: agents often earn far more for selling traditional endowment or ULIP products than pure term insurance, despite term offering substantially more protection per rupee. Insurance penetration in India has fallen for three straight years to 3.7% of GDP, with density at just $97 per capita against a global average of $943.
Whether a hard cap fixes that or simply makes it less profitable to serve the customers who need coverage most, is the question IRDAI’s next draft will have to answer.
This developing regulatory story continues to unfold, with the final framework expected following the current round of public consultations.
