By Sriram Iyer September 24, 2026, 12:35:43 PM IST (Updated) IRDAI insurance reforms: India's insurance regulator is moving to dismantle a creaking distribution system it says has become a wealth transfer from p... 1 /5 The trigger is stark: since 2023, when the regulator loosened commission caps to give insurers more flexibility, distribution costs have soared. Distributor remuneration jumped 125% across life insurance corporate agencies from 2023 to 2025, four to five times faster than the 28% premium growth in the same period. However, While curbing commissions, IRDAI has tried to protect distributors' income by allowing them to sell other financial products alongside insurance.
It could also improve the economics of insurance distribution, especially in rural and underserved areas where insurance alone may not be sufficient to sustain a business. 2 /5 Misaligned incentives: In life insurance, commissions on first-year premiums now reach as high as 80%, meaning an insurer pays a distributor up to ₹80 in commission for every ₹100 of premium collected. The average, excluding direct and online channels, sits around 50%. It's a little better in general insurance.
Broker commissions on motor insurance nearly tripled from around 9% in 2023 to 25% by 2025. On retail health insurance placed through brokers, commissions jumped from 10% to 30% in the same window. The result?
Distributors push only those policies that help their earnings. Therefore, premium prices stay high, renewals plummet, and coverage stagnates. Online channels, where customers make deliberate purchases without intermediary influence, see persistence climb to 71%.
The regulator wants to fix the incentive structure by linking commission levels to the effort and complexity involved in selling a product. 3 /5 The share of India's population with active insurance has flatlined despite a fast-growing economy and rising household incomes. Ten states account for 80-82% of retail health policies. Maharashtra alone holds 20% of all retail health insurance sold in India.
Within states, the pattern repeats: the top 10 districts drive the majority of new policies. Rural populations and small-town businesses remain vastly underinsured. Allowing distributors to engage in other businesses, the regulator hopes to attract more participants, increase competition and generate employment.
It could also improve the economics of insurance distribution, especially in rural and underserved areas where insurance alone may not be sufficient to sustain a business. IRDAI has also proposed to reduce capital requirement for entry-level distributors to just ₹10 lakh to increase competition. 4 /5 Platforms like Bima Sugam are intended to become digital public infrastructure for insurance, allowing customers to buy, service and compare policies seamlessly. Insurers could also create additional market infrastructure institutions with a capital requirement of just ₹25 crore.
Certain core repositories and registries would remain under regulatory oversight to ensure neutrality and trust. 5 /5 The IRDAI proposals are not incremental. They amount to a rewrite of insurance distribution rules. Today, different types of insurance distributors, such as agents, brokers, web aggregators and corporate intermediaries, often operate under different regulatory frameworks even when they perform very similar functions.
This creates opportunities for businesses to choose a structure based on regulatory advantages rather than customer value. IRDAI seeks to classify distributors into three broad categories and subject entities with similar business models to the same rules, obligations, and oversight, creating a level playing field where competition is based on service quality, product innovation, and customer outcomes rather than regulatory loopholes.
Source: CNBC TV18
