The insurance regulatory and development authority of India (IRDAI) has proposed a sweeping overhaul of the economics and structure of insurance distribution, including lower expense limits for insurers, product-linked commission caps, greater disclosure of distributor remuneration and a clawback mechanism in cases of mis-selling. Meanwhile, shares of PB Fintech Ltd, the parent company of PolicyBazaar, crashed 36% Thursday after IRDAI proposed changes in the commission structures, expense limits and insurance distribution practices.
The regulator has also proposed simplifying the intermediary framework, reducing the number of distribution layers and creating digital, pull-based channels through market infrastructure institutions (MIIs), with Bima Sugam envisaged as one such platform.
The consultation is anchored in the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, which seeks to accelerate growth in the insurance sector while strengthening policyholder protection, easing business operations and improving regulatory transparency.
Clawback Proposed for Mis-selling
IRDAI has proposed stronger safeguards against mis-selling, including a commission clawback mechanism where a policy is sold through mis-selling.
The proposals include documenting customer needs and suitability, linking the identity of the individual distributor to the policy sold and making information on mis-selling incidents available in the public domain.
The regulator also proposes that volume-linked or reward-linked incentives for bank and NBFC employees selling insurance should not be permitted.
The framework would additionally strengthen safeguards against compulsory bundling of insurance with loans and other financial products and services.
The consultation paper proposes tracking dark patterns — digital interface or design practices that can mislead or manipulate customers into taking actions they may not otherwise have chosen. It also proposes standardised disclosure of product, pricing and quality information without requiring customers to first provide personal details.
Life Insurers' EoM Cap Proposed at 12.5% of GDPI
A key proposal is a phased reduction in insurers' expense of management (EoM) limits, which cover expenses associated with running the insurance business, including distribution-related costs.
For life insurers, IRDAI has proposed shifting to a company-level EoM limit linked to gross direct premium income (GDPI). The limit would be brought down to 15% within two years and 12.5% within five years.
For general insurers, the regulator has proposed changing the basis from gross written premium (GWP) to domestic GDPI. The EoM limit would be reduced progressively from the existing 30% of GWP to 20% of GDPI over five years.
The proposed glide path is intended to allow insurers and distributors time to adjust rather than imposing the lower limits immediately.
IRDAI said the reduction in EoM is expected to lower overall insurance costs, potentially widening the risk pool in general insurance and improving returns for policyholders in life savings products.
The regulator has also proposed reducing the regulatory fee payable by insurers.
Commission Rules To Depend on Product Complexity
IRDAI has proposed moving away from a uniform approach to commissions. Under the proposed framework, commission limits would take into account the insurance segment, line of business, distribution channel, complexity of the product and the effort required to sell and service it.
The regulator has also proposed bringing all forms of remuneration within the regulatory framework, including direct and indirect payments as well as monetary and non-monetary rewards.
Additional rewards may be permitted for selling insurance in underserved markets, including rural areas, small towns with populations of up to 50,000 and smaller cities with populations of up to 1mn (million).
The proposals also envisage cost audits and safeguards against indirect payments to improve accountability over the actual cost of distribution.
IRDAI's consultation paper comes amid concerns about rising distribution costs in parts of the insurance industry. The regulator's analysis, as reported in the consultation paper, points to distributor remuneration growing faster than premiums in several segments in recent years.
Commission Disclosure Proposed for Large Policies
The regulator has also proposed greater transparency around commissions. Insurers and large distribution entities would have to disclose their commission policies and structures in a simple and accessible manner. Certain commercial policies would also carry commission disclosures, allowing customers to see the distribution costs embedded in the pricing.
The consultation paper seeks to make remuneration structures more transparent rather than leaving customers with limited visibility into how distributors are compensated.
Simpler Distribution Structure
IRDAI has proposed replacing the existing fragmented distribution architecture with three broad categories, insurance distribution entities (IDEs), insurance distribution persons (IDPs) and market infrastructure institutions (MIIs).
The proposed architecture is based on the principle of 'same structure, same functions, same norms'.
The regulator has proposed simpler registration procedures, lower entry and capital requirements and reduced regulatory fees for distributors. It also wants to give distribution entities greater flexibility to engage in insurance and other financial and non-financial activities.
The stated objective is to reduce regulatory arbitrage and operational constraints while allowing more entrepreneurs, including those in smaller markets, to participate in insurance distribution.
IRDAI also wants to reduce unnecessary distribution layers and expand direct purchase options for consumers.
Bima Sugam as Digital, Pull-based Channel
Digital infrastructure is another major component of the proposed overhaul. IRDAI has proposed MIIs as digital, pull-based alternatives for insurance distribution, under which consumers can seek out, compare and purchase insurance rather than relying solely on traditional push-based sales channels.
Bima Sugam has been identified as one such digital infrastructure platform.
The regulator has also proposed greater use of a public insurance registry (PIR) as digital public infrastructure for the sector.
The PIR is envisaged as a mechanism to support greater transparency, comparison and portability while improving operational efficiency across the insurance ecosystem.
Together, Bima Sugam and the proposed registry are intended to reduce transaction costs, improve access to information and make it easier for consumers to compare and purchase insurance, the regulator said.
Focus on Reducing Mis-selling and Improving Consumer Choice
IRDAI's proposed changes seek to address not just the cost of insurance distribution but also the incentives that influence how policies are sold.
The regulator wants remuneration to better reflect the complexity and servicing requirements of a product, while curbing incentives that could encourage distributors to prioritise volumes over customer suitability.
The proposals also seek to strengthen transparency around product information, commissions and distribution practices.
IRDAI said the measures are designed to work together: a simpler distribution structure could encourage competition and participation; lower structural costs could support affordability; better-aligned remuneration could encourage quality advice and service; and digital infrastructure could make insurance more accessible.
The broader objective is to bring more uninsured people into the insurance system while improving outcomes for existing policyholders.
The proposals are currently at the consultation stage and are not final regulations. IRDAI has invited comments and suggestions from policyholders, insurers, distributors and other stakeholders on the problems identified in the consultation paper, the proposed objectives and the suggested implementation measures.
Comments can be submitted through the web consultation process, the prescribed Excel template or email. The deadline for submissions is 25 October 2026.
PB Fintech ended Thursday 36% down at ₹1,210 on BSE, while the 30-share Sensex closed the day 1,247 points or 1.67% down at 73580.54 points.
The misselling of insurance needs to be stopped and capping commissions is one way to go about it. No incentive for misselling which will automatically check it.
I can't help but think of a recent article where a senior citizen (over 80 or 90 year old) was sold a product which had an age limit of 70 or 75 - while I am not sure of the exact details but it is a telling example of - how a product which should never even been discussed was sold to someone and made it all the way through into an actual policy being sold.
1. IRDAI from the Article I read, is only talking of reducing the Distributor Income & that alone would improve the quality of services.
2. Reality is Not Really That - Distributors sell only the Insurance products designed in accordance with IRDA guidelines & as approved by IRDAI. Between many Insurance Cos there in no any standardization. IRDA needs to address that first. ( For eg Niva Bupa is selling REASSURE 3.0 Unlimited claim settlement???. It's misleading. Distributor sells - knowledge & understanding level of each distributor isn't the same. Customer understanding also very pathetic. They don't understand, and they only see Premium low, unlimited & in a hurry payment. They don't even read the product to get clarification. Finally Product gets sold. There's NO change in commission structure - 15% for new policies across any Insurance Co. So by reducing cost - how does quality improve.
4. Look at the complete supply chain - key stake holders - Hospital, Service Provider, Customer. Negotiations happen between hospital & Service Provider. Different Rates for same surgery with Different hospital.
5. SP are the same - To beat competition different SPs charge customers differently & there's no parity on premium. Very few match Costs & Revenue. But many sells the policy at a low cost & creates challenges during claims. Now what distributor can do. He sold what was given as a product to sell. %age of commission is same. How service quality can improve by reducing distributor commission.
6. To bring in more customers - more awareness has to be created, whole supply chain has to be studied before making any meaningful decisions.
7. Distributors are non permanent kind of employees and are paid only when they perform, unlike a full time employee gets salary irrespective of performance.
7. While I am not against streamlining commission structures, complete study needs to be done. IRDA cannot look in isolation & say quality will improve by reducing commission structures.
8. Advisors are the pillars of while Insurance Industry.
9. Commission %age remains same.
10. To penetrate, awareness & customers too must understand the importance of Insurance. ( A well educated customer of mine is not willing to renew the policy after 3 years, saying he will renew later after many years as it's not required for him now. All efforts & money down the drain). What IRDA can say on this behaviour.
Streamline the premium for rural customers, with a view they too can travel across anywhere for treatment.
12. IRDA has to address every aspect. Regards Rajaraman
This is the state of affairs and lot of other issues are also there