The Insurance Regulatory and Development Authority of India (IRDAI) is examining a comprehensive revamp of commission structures across insurance distribution channels, with a sharper focus on linking payouts to the level of effort involved in policy sales. According to sources told CNBC-TV18, the regulator is considering an 'effort-based' commission framework where traditional agency channels requiring higher engagement—including onboarding, advisory and servicing—could see relatively higher payouts. In contrast, low-touch channels such as web aggregators and bancassurance may face tighter commission structures given lower distribution effort.
The proposed framework comes amid rising concerns around distribution costs hurting insurance penetration, as reported by CNBC-TV18. Recent industry data shows that commission payouts have been rising faster than premium growth, prompting regulatory scrutiny. Regulators have flagged high customer acquisition costs as a key factor keeping insurance penetration low and premiums elevated. If implemented, the changes could materially alter distribution economics across insurers, brokers, banks and digital platforms, and potentially reshape how insurance products are sold in India.
The current regulatory regime already allows IRDAI to prescribe limits on commissions and remuneration to agents and intermediaries, with the broader objective of ensuring transparency and protecting policyholder interests. According to CNBC-TV18 reports, over the past few years, IRDAI has moved towards giving insurers greater flexibility in structuring commissions, including removing product-wise caps in 2023 and shifting to an overall expenses-based framework. However, rising expenses and instances of excess payouts have triggered discussions on recalibrating the system.
The move is part of a broader overhaul of distribution regulations that IRDAI is currently working on, as reported by CNBC-TV18. A consultation paper outlining the proposed changes is likely to be released by the end of the month, according to sources. The proposed framework is also expected to revisit norms governing bancassurance and agency channels, alongside rationalisation of overall commission limits and expenses of management (EoM).
