IRDAI insurance reforms aligned with government’s goal of lowering financial intermediation cost, says Ajay Seth

Reducing the cost of intermediation in the financial sector is an important policy goal on India’s journey to Viksit Bharat, IRDAI Chairman Ajay Seth said, signalling that the regulator’s proposed overhaul of insurance distribution is part of a broader government push to make financial services more cost-efficient.

Seth was responding to a question on whether the sweeping proposals in IRDAI’s consultation paper — which have rattled the insurance industry — are aligned with the government’s thinking and whether the reforms can be pushed through and sustained beyond his tenure.

In an exclusive in-depth interview with Moneycontrol, Seth said, the proposals are anchored in the objectives of the Sabka Bima Sabki Raksha Act, 2025, which seeks to accelerate insurance growth, strengthen policyholder protection, improve ease of doing business and reinforce regulatory oversight.

“Policyholder protection has always been central to IRDAI's mandate,” he said, adding that the regulator’s understanding of what effective protection requires has evolved as the market has grown larger and more complex.

The proposed reset of insurance commissions and distribution incentives, therefore, is not merely about lowering payouts to intermediaries. The broader objective is to reduce the cost of getting insurance to consumers while improving the quality of distribution and strengthening accountability.

The consultation paper has proposed significant changes to the economics of insurance distribution, including commission caps and a restructuring of incentives. IRDAI has argued that lower acquisition and servicing costs should ultimately benefit policyholders rather than be absorbed by commission-led distribution.

Digital infrastructure will be an important part of that effort. The Public Insurance Registry and Bima Sugam are intended to improve access to information, reduce information asymmetry and make insurance easier to discover, compare and purchase.

The more difficult challenge, however, is ensuring that the reforms translate into measurable benefits for policyholders and survive beyond the tenure of the current regulator.

Seth said the strength of the reform process lies in its institutional framework rather than any individual.

“On continuity, the strength lies in the process, not any individual,” he said.

The amended law requires draft regulations to be published for public comment, followed by a published response to stakeholder feedback and periodic review.

“Reforms built on evidence, consultation and outcome monitoring become institutional, and that is what will carry our objective forward,” Seth said.