Buying new car? Your motor insurance dealer may earn up to 38% commission - what IRDAI's proposed fix means

The IRDAI is scrutinising high commissions earned from mandatory motor insurance policies sold through dealers. Here's what the regulator's proposed fix means for dealers and buyers.

A new car purchase often comes with the mandatory motor insurance policy arranged through the dealer or an automotive dealer-linked intermediary. While buyers are not required to purchase insurance through them, many still do so for convenience and to avoid the hassle of arranging a policy separately.

These parties receive hefty commissions on the policies they sell, putting the practice under scrutiny of the Insurance Regulatory and Development Authority of India's (IRDAI), which has proposed changes to limit such payouts.

According to the insurance regulator's consultation paper published last week, these distributors earned almost ₹7,050 crore as commission on ₹29,000 crore of motor insurance premium in FY 2025.

"Motor insurance is a prime example of lack of transparency driving high commissions in spite of products being simple and a part of the insurance being mandatory (third-party insurance)," the consultation paper noted.

The gap between premium growth and commission growth has also widened sharply. Between FY23 and FY25, motor insurance premiums grew by around 34% while commissions jumped nearly 259%. In the same period, the average commission rates on broker-placed motor business rose from 9% to 25%.

Even commissions on regulated third-party motor insurance increased significantly, rising from 4.3% of premium in FY23 to 22% in FY25.

For newly purchased vehicles, OEM brokers get an average commission of 27%, while MISPs receive 38%. The latter one also earns an average 12% commission on policies for older vehicles brought to their garages for servicing.

The insurance regulator has proposed that motor insurance products for both new and old vehicles should be available on Market Infrastructure Institution (MII) platforms such as Bima Sugam, which is expected to become operational in the next four to six months. It has also proposed capping the platform fee for not-for-profit platforms at 5% of the premium.

For customers buying new vehicles from a showroom, dealers would have to prominently display an option to purchase motor insurance through the MII platform, including a QR code through which customers can access the platform. They would also have to make new-vehicle customers aware of this option.

The regulator's paper has proposed that commission on mandatory third-party insurance for new vehicles should be nil for distribution entities and 2.5% for agents, with own-damage and other covers capped at 5% to 15% depending on the channel and the age of the vehicle.

The insurance regulator has invited public comments on the proposals until October 25, 2026.