Insurance regulatory and development authority of India (IRDAI) chairman Ajay Seth has questioned the sharp increase in insurance distribution costs and commissions in recent years, saying policyholders should be getting significantly greater value if such expenses continue to rise. The sharp increase in commissions cited by the IRDAI chairman, including one example of a rise from about 8% to 24% and another from 6%-7% to 38%, is likely to remain a key focus as the regulator weighs feedback on its proposed overhaul of insurance distribution economics.
Speaking
exclusively to CNBC-TV18 at its market forum event, Mr Seth pointed to what he described as steep increases in commissions paid to some large insurance distributors. In one instance, he said, the commission rate had climbed from around 8% a few years ago to 24%. In another case, it had risen from about 6%-7% to as much as 38% of the business generated by the distributor.
Mr Seth also highlighted the profitability of a large distributor, noting that its post-tax profit was 44% of its top line. In this context, he clarified that the top line referred to commission income rather than insurance premiums.
The IRDAI chief questioned whether such economics were translating into adequate benefits for customers.
“If anybody has to be shocked, it has to be the policyholders,” Mr Seth told CNBC-TV18, asking where policyholders figured in the sharp increase in distribution costs and whether they were receiving greater value in return.
The proposed overhaul covers commissions, remuneration and distribution arrangements across insurance segments, along with measures relating to expenses of management, dark patterns and a proposed framework for mutual insurance intermediaries.
Mr Seth told CNBC-TV18 that the exercise is not simply aimed at cutting commissions or reducing the income of distributors. The broader objective, he said, is to make the insurance sector more efficient and ensure that its economics work better for policyholders.
He said the industry had lost some of the efficiency it had achieved several years ago and should work towards regaining it.
According to Mr Seth, distribution costs have risen particularly sharply over the past two to three years. The regulatory expectation had been that more efficient players would continue to improve productivity, while others would gradually catch up.
Instead, he said, the industry had increasingly moved towards a high-cost business model, with one player following another.
Mr Seth said IRDAI's objective is not to impose a sudden disruption on the industry but to take costs back towards levels seen six to eight years ago.
The regulator's view, he said, is essentially that the sector had previously operated more efficiently and should be capable of returning to those levels.
“This paper is not merely about bringing distribution cost down. It is about having a far more efficient insurance sector,” Mr Seth said, according to CNBC-TV18.
He added that efficiency gains should free up resources and create opportunities for distributors and other participants to pursue additional business.
The consultation, therefore, is intended to improve productivity across the insurance ecosystem rather than target distributors alone, the IRDAI chief said. Insurers, intermediaries and the regulator itself would all need to become more productive.
Mr Seth also stressed the importance of greater competition and transparency in the insurance industry.
He said IRDAI is seeing interest from new players seeking to enter the sector and that greater competition could help bring efficiency into the business. The regulator is also particularly focused on the cost of doing business in health insurance, where Mr Seth said costs need to come down.
At the same time, he said transparency must remain a priority, particularly when insurance products are being sold to retail customers.
The consultation paper proposes changes that could affect the way products are marketed and sold, including the incentives available to intermediaries. It also seeks to address so-called dark patterns — practices that can influence customers' decisions without making the underlying terms or choices sufficiently clear.
According to the IRDAI chief, customers should have access to clear information about a product, including its features, price and quality of service, before making a purchase.
The proposed changes are not limited to reducing distribution costs in established markets. Mr Seth said the proposed commission framework would also provide for additional commission opportunities in smaller cities and towns that remain underserved by insurance distributors.
He also explained the distinction between insurance distribution entities (IDEs) and insurance distribution persons (IDPs) under the proposed framework.
While IDEs are envisaged under an open-architecture model, IDPs would be able to sell products only from insurers with which they have a tie-up.
The regulator is also examining the role of managing general agents (MGAs). Mr Seth questioned the economic rationale for allowing an entity to effectively operate on both sides of the insurance value chain.
His stated position was that an entity should operate either as an insurer or as a distributor, rather than combining both roles.
The discussion also covered the broader cost pressures in health insurance. Mr Seth said the cost of healthcare services itself does not fall within IRDAI's regulatory domain. However, he said there was scope to improve and standardise the claims process so that settlements are handled more consistently and within reasonable timelines.
He suggested that healthcare providers and insurers could work together through a common platform to address recurring issues around claim settlement.
On dark patterns, Mr Seth said customers should be able to determine whether an insurance product actually meets their requirements before committing to it.
He also cautioned that seeking personal information from customers merely to provide basic product information could raise concerns under existing laws.
IRDAI has begun engaging with industry stakeholders on the proposed changes, its chairman told CNBC-TV18, saying that he had met smaller groups of insurers to discuss the consultation paper.
He said the feedback received so far had been supportive, while a meeting with chief executive officers (CEOs) of insurance companies is scheduled for 5 October 2026 in Delhi.
Comments can be submitted through the web consultation process, the prescribed Excel template or email. The deadline for submissions is 25 October 2026. The proposals are not final and could undergo changes after IRDAI considers feedback from insurers, distributors and other stakeholders.
For now, Mr Seth's remarks make clear that the regulator's central concern is not simply how much distributors earn, but whether the rising cost of selling insurance is justified by the value ultimately delivered to customers.
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