The Insurance Regulatory and Development Authority of India proposed major distribution reforms in a consultation paper released on September 23. These changes aim to create a transparent ecosystem, but many insurers expressed significant reservations. One executive said, “We have submitted our objections to some of the proposals that could adversely affect.”
The insurance industry is at a crossroads, thanks to a significant line-up of regulatory reforms that have become a widely debated topic among insurers and other stakeholders.
In September, the Insurance Regulatory and Development Authority of India (IRDAI) proposed, in a consultation paper, a slew of distribution reforms. While the reforms were long anticipated, the proposals were perhaps the most radical in the regulatory regime in recent times.
According to the consultation paper, titled ‘Recalibrating economics of insurance distribution’ and released on September 23, the regulator proposed establishing a “customer-centric, competitive, efficient and transparent distribution ecosystem, while enabling better and sustainable outcomes for policyholders, insurers and distributors’’.
The key proposals include recalibration of expenses of management (EoM) through lower limits, with a phased glide path.
For life insurers, the EoM limit would move to a company-level basis linked to gross direct premium income (GDPI), and proposed at 15 per cent within two years and 12.5 per cent within five years.
For general insurers, the basis would shift from gross written premium (GWP) to domestic GDPI, with the EoM limit reducing from 30 per cent of GWP to 20 per cent of GDPI within five years.
Other key proposals seek to eliminate the scope for regulatory arbitrage, removal of restrictions on non-insurance business opportunities for intermediaries, easing the entry and capital requirements, lower limits on expenses management, and revision of commission norms.
The authority proposed to replace the existing complex and fragmented architecture with three broad categories of distribution entities — namely insurance distribution entities (IDEs), insurance distribution persons (IDPs), and market infrastructure institutions (MIIs).
This is guided by the principle of “same structure, same functions, same norms’’, IRDAI said.
Concerns raised
All stakeholders, except policyholders, have raised concerns over the proposals. While insurers have not responded officially yet, they have expressed significant reservations to the authority.
“We have submitted our objections to some of the proposals that could adversely affect operational dynamics for insurance companies,’’ the MD and Chief Executive Officer of a general insurance company told businessline, while declining to be named.
“From an industry perspective, I suppose the resistance from insurance companies to these reforms is very strong, compared to any other regulatory changes brought so far,” he added.
The Insurance Brokers Association of India (IBAI) also voiced strong opposition in its response to the authority. It questioned the regulator’s position on EoM, stating that “the evidence does not support the remedy’’ and argued that EoM in general insurance fell from 28.2 per cent of premium in FY23 to 26.5 per cent in FY25, while premium grew about 13 per cent a year.
It added that the reported rise in commission largely reflects the reclassification of payments previously booked under other heads, which the paper also acknowledges.
“Where cost is high, the consultation paper’s own figures place it in forced sales, where the policyholder has no choice: loan-linked credit life pays 42–45 per cent; dealer controlled motor pays up to 75 per cent. Independent brokers and agents average 17–18 per cent and brokers serving corporate clients 6–11 per cent,” it said.
In a letter to Prime Minister Narendra Modi on October 2, the IBAI cautioned that the proposed reforms could lead to loss of jobs and growth, and reduce competition in the industry.
According to Narendra Bharindwal , President of IBAI, the PM’s intervention was sought to ensure that no regulation on commission or expense limits is notified without a published impact assessment covering policyholders, employment, public sector insurers and foreign investment, and to continue with the 2023 framework until its scheduled review in 2028.
“This is not an argument against reform; it is an argument for reform that reaches the policyholder,’’ he said.
About 15 lakh life insurance agents, too, are worried over the likely reduction in remuneration and have requested the IRDAI to avoid a “disproportionate” cut under the proposed reforms.
Fair treatment
The representation also sought a level playing field for individual agents by ensuring “fair” treatment to all intermediaries, including corporate agents, banks and digital platforms.
“Cost-efficiency should not be pursued in a manner that reduces the number of active agents or leaves the profession economically unsustainable,’’ B Markandeyulu, Secretary General of the Life Insurance Agents Federation of India (LIAFI), said.
The proposed reforms come at a stage when the industry is registering healthy growth. As per IRDAI data, life insurers’ first-year premium rose 20.6 per cent year-on-year at ₹2.46 lakh crore during April–September FY26, against ₹2.04 lakh crore in the corresponding period last year, driven by a growth in both individual and group single-premium policies.
The non-life insurance industry recorded 11.74 per cent year-on-year growth in gross direct premium underwritten during the first half of FY27, excluding specialised insurers. Together with specialised insurers, the industry’s premium grew 8.92 per cent to ₹1,79,712 crore from ₹1,64,987 crore in the first half of FY26.
While the IRDAI is keen on fostering a policyholder-friendly insurance ecosystem in the context of the rising worry that higher commissions may be leading to mis-selling of insurance, it remains to be seen how it will balance this against the concerns of the industry and the need to ensure a friction-free path to achieving the ‘insurance for all’ goal by 2047.