The Insurance Regulatory and Development Authority of India has proposed a major overhaul of insurance distribution rules in an effort to make the sector more transparent, competitive and customer focused. The proposals could affect how insurance policies are sold, how distributors are paid and how insurers manage their distribution expenses.
IRDAI released a consultation paper titled Recalibrating Economics of Insurance Distribution on September 23, 2026. The proposed framework covers insurance distribution structures, commissions, expenses, market conduct, transparency and digital infrastructure.
The proposals are intended to improve the value delivered to policyholders while reducing distribution costs and strengthening safeguards against mis selling. However, these measures are still at the consultation stage. IRDAI has invited comments and suggestions from stakeholders until October 25, 2026.
One of the major proposed changes concerns insurance commissions. IRDAI wants commission limits to take into account factors such as the insurance segment, type of product, distribution channel, complexity of the policy and the effort required to sell and service it.
Under the proposed framework, commission limits would vary across different insurance products rather than following one uniform structure. For individual non linked and linked life insurance products, the proposed commission range for distribution entities is between 5 percent and 20 percent, depending on the premium payment term. The corresponding range proposed for agents is between 6.25 percent and 25 percent.
The regulator has also proposed changes to renewal commissions. The broader objective is to encourage distributors to focus not only on acquiring new customers but also on helping policyholders continue suitable insurance coverage over the longer term.
For health insurance, the proposals include lower commission levels for renewals compared with first time sales. IRDAI has also proposed measures to discourage commission driven switching of health and motor insurance policies. The intention is to ensure that portability decisions are based on policyholder needs rather than distributor incentives.
Another important proposal relates to transparency. IRDAI wants insurers and large distribution entities to disclose their commission policies and structures in a simple and accessible manner. This could give customers a clearer understanding of the financial arrangements behind insurance distribution.
Greater disclosure could help policyholders understand who is selling a policy and how the distribution system works. The proposals also seek to make information about sales personnel and their conduct more accessible through a proposed Public Insurance Registry.
Mis selling is another major area covered by the proposed reforms. IRDAI has proposed stronger accountability for individuals and entities involved in inappropriate sales practices.
One proposal would link an individual's identity with the insurance policies they sell. The regulator has also proposed making information about mis selling incidents available to the public and introducing a commission clawback mechanism in cases where mis selling is established.
For customers, these measures could provide additional safeguards when buying insurance. If implemented, the framework could make distributors more accountable for the policies they sell and the manner in which those products are presented to customers.
IRDAI has also proposed restrictions on compulsory insurance bundling with loans and credit products. Under the proposal, lenders would not be permitted to make a particular insurance policy compulsory as a condition for providing a loan, except where an acceptable insurance and credit package serves the interests of the policyholder.
This could be particularly relevant to customers taking home loans, vehicle loans and other forms of credit. The proposal is intended to give borrowers greater freedom when choosing insurance instead of linking loan approval to the purchase of a particular insurance product.
The regulator has also proposed restrictions on volume linked and reward linked incentives for employees of banks and non banking financial companies who sell insurance. The measure is aimed at reducing incentives that could encourage unsuitable products to be pushed to customers.
Digital insurance distribution is another area covered by the proposed framework. IRDAI has proposed greater use of digital infrastructure to give customers more direct ways to access, compare and purchase insurance products.
The regulator has also proposed action against certain digital practices known as dark patterns. These include website designs or processes that could make it difficult for consumers to access information without first providing personal details. The proposal seeks to make insurance websites more transparent and customer friendly.
The proposed reforms also include changes to insurers' Expenses of Management. IRDAI has proposed a phased reduction in these expense limits.
For life insurers, the proposal would bring company level Expenses of Management down to 15 percent of gross direct premium income within two years and 12.5 percent within five years. For general insurers, the regulator has proposed shifting the benchmark to domestic gross direct premium income and reducing the limit toward 20 percent over five years.
IRDAI has said that lowering these expenses could reduce the overall cost of insurance, expand the risk pool in general insurance and potentially improve returns for policyholders in life savings products.
The proposed changes could also affect insurers and insurance distributors financially. Industry analysts have noted that lower commission limits could put pressure on the earnings of companies that depend heavily on distribution income. The effect could vary depending on the company's distribution model and the final commission structure.
For policyholders, however, the impact will depend on how insurers respond to the new framework if the proposals are eventually adopted. Lower distribution costs could potentially influence product pricing and the economics of selling insurance, but the final effect on premiums and product availability cannot be determined until the rules are finalised.
There are also concerns about access to insurance in smaller markets. Some industry participants have argued that lower commissions could affect the availability of certain low premium products or reduce incentives to serve customers in less developed markets. IRDAI has proposed allowing additional rewards for products sold in underserved areas, which is intended to support distribution in such markets.
The proposed reforms therefore cover much more than commission rates. They address the broader way insurance is distributed and sold in India.
For customers, the most visible potential changes could include clearer commission disclosures, stronger safeguards against mis selling, restrictions on compulsory insurance bundling with loans, greater accountability for sales personnel and improved digital access to insurance information.
It is important for policyholders to understand that none of these proposed changes should currently be treated as final regulations. IRDAI is consulting stakeholders and may modify the proposals after receiving feedback.
Existing policyholders should also not assume that their current policy terms or benefits will automatically change because of the consultation paper. Any future regulatory changes would depend on the final rules and their effective dates.
The consultation process will therefore be closely watched by insurers, agents, brokers, banks, financial institutions and customers. The final framework could determine how insurance distribution evolves in India over the coming years.
The proposed overhaul represents a broad attempt to change the economics and conduct of insurance distribution while placing greater emphasis on transparency and policyholder protection. The final impact on insurance prices, distribution networks and customer experience will become clearer only after IRDAI completes the consultation process and announces any final regulations.