IRDAI’s consultative paper, ‘Recalibrating the Economics of Insurance Distribution,’ calls for re-examining and restructuring the existing model for distributing insurance products so the costs, commissions, incentives, and returns associated with selling insurance are more justifiable, effective, and aligned with customer interests. The proposed reform aims to improve outcomes for stakeholders, specifically policyholders, insurers, and distributors. Such reform is needed in a market that is distorted by abysmally poor market conduct – be it product design, pricing, distribution woes and overall market practices.
In a nutshell, it asks customers: Are customers paying for insurance distribution in the right way, through the right channels, and for the right outcomes?
The paper further states that ‘our collective goal of “Viksit Bharat” requires the insurance sector to play a role far bigger than its current state in improving the financial resilience of households and entities.’
The time has come to revisit how distribution serves as a bridge between insurers and the public. The time has also come to change this age-old practice and move away strategically from “insurance is sold” to “insurance is also purchased,” leveraging the opportunity the Digital India era creates.
Section 3 of Part One of the paper discusses ‘Challenges of the Insurance Sector’ and identifies ten pressing challenges. The following analysis examines the principal concerns raised. The challenges identified are as follows: 1. Growth Gap 2. Misaligned Interest 3. Growth First Incentive 4. Reforms Fell Short 5. Weak Customer Power 6. Commission-Led Sales 7. Low Trust and Coverage 8. Lack of Transparency 9. Regulatory Arbitrage 10. Distributor Leverage
1. Growth Gap
Authors’ View: The paper rightly notes growth in the sector’s absolute premium. Still, penetration and coverage continue to stagnate notwithstanding sustained economic growth and rising household incomes. High-value sales to existing customers, driven by higher incomes, constitute the bulk of the premium; new population or geographical segments remain elusive. Micro, Small and Medium Enterprises (MSMEs) is cited as one example that remains inadequately protected.
It may be noted that as of 23 October 2026, there are a total of 9,91,74,080 (MICRO- 9,85,86,943; Small – 5,45,120; Medium – 42,017 ) MSME UDYAM registrations, including UAP (Udyam Assist Platform) (Source: Performance Smart Board –Ministry of MSME). MSME sector accounts for 30.1% of India’s GDP, 35.4% of manufacturing and 45.73% of exports in the country: Union Minister for MSME (Source – Posted On: 04 JUL 2025 by PIB Mumbai) . MSME insurance penetration remains low at 15-20%, even though the segment contributes significantly to employment generation and economic activity. The paper rightly highlights the need to develop this neglected segment, among many, to reach untouched segments. However, this is not a recent phenomenon; it has been going on for years.
Market Development: How to Leverage Value Through Segmentation: a neglected area – This points out a significant lacuna in the market strategy employed by insurers and major distributors such as brokers, banks, and NBFCs. They cumulatively failed to create customer value through segmentation, starting with plotting geographies, demographics, socio-cultural, and economic elements – searching for a common unifying factor. Tata Group Trent Ltd’, Zudio – targets the value-conscious aspirational class is an example –selling to Indian consumers who want to look fashionable without spending heavily. Similarly, in health insurance, look for such an aspirational population who want to seek good medical facilities without spending heavily- create a cluster of such customers – segment them, nudge their purchasing power and actionability and finally follow it up by constantly monitoring the segment change by offering increased customer value. Thus, ‘Recalibrating the Economics of Insurance Distribution calls for sustained marketing acumen and strategy.
The paper points out that ’10 states consistently account for 80% to 82% of retail health policies. Maharashtra alone accounts for 20% of all retail health policies, indicating a strong concentration of business in the state. In the Life insurance segment, a similar bias is observed. 66% to 70% of retail new business is concentrated in 10 states. This clearly indicates that the insurer made little to no effort to expand reach to other states or districts. The insurer or distributors limited their efforts to easily accessible customer segments.
Skewed Business Portfolio – As per the IRDAI Annual Report 2024-25, total insurance business was 11,93,444.00 crore, with contributions from life (8,85,772.00 crore), non-life (1,80,218 crore), and health (1,27,454.00 crore). In USD terms, India’s total insurance business was USD 141.16 billion (Life: USD 104.84 billion; Non-life: USD 36.32 billion). Life insurance contributed 74%, while non–life contributed 26% of the total business. Real premium growth in life (2.3%) and Non-life (0.2%) businesses is far behind the world average of 6.1% for life and 4.7% for Non-life. On penetration, life and non-life penetration at 2.7% and 1% is behind the world average of 3% in life and 4.3% in non-life business. Non –life business in India continues to struggle despite growth in Motor and Health portfolios.
In 2024–25, the distribution of gross direct premiums across non-life insurance segments revealed a distinctly uneven growth pattern. Health insurance accounted for Rs. 1,27,417 crore, followed by Motor at Rs. 99,093 crore, Others at Rs. 51,355 crore, Fire at Rs. 24,242 crore and Marine at Rs. 5,504 crore, taking the total to Rs. 3,07,611 crore.
The concentration of business in Motor and Health highlights the lopsided nature of growth in the non-life insurance sector. Several other segments, including Fire, Marine, Engineering, Liability, and Home insurance, remain relatively underdeveloped, with limited progress in tapping new risks, customer segments, and emerging business opportunities.
Intense price competition and premium undercutting in Fire, Marine, and Engineering insurance are key factors constraining growth and profitability. The report, however, didn’t highlight this as a distribution bottleneck. Equally concerning is the failure to expand the market by developing new customer segments and addressing emerging protection needs. The challenge, therefore, is not merely to grow premiums, but to achieve more balanced and sustainable growth across non-life insurance portfolios by combining disciplined pricing with product innovation, market development and a broader risk-coverage approach.
2. Misaligned interests of insurers, distributors and the public. – Insurance asymmetry exists in the industry, favouring the insurer, and the report has rightly highlighted this, calling for better measures and regulatory supervision
The report noted that remuneration has been rising four to five times faster than the business it supports, creating a ‘buyer beware’ environment in which consumers must fend for themselves with complex financial products. Such an outcome runs counter to the objective of expanding insurance coverage and calls for efforts that reorient incentives toward generating customer value.
Another alarming finding is the growth of the NBFC corporate agency channel, which has nearly tripled since FY23, with payouts averaging 42% of new business premium. About 93% comprises single-premium Group Credit Life products sold alongside loans, limiting customer choice, while payouts have risen to around 45%.
3. Sector incentives favour business growth over public value.
The report rightly diagnoses that current incentive structures have diluted good market conduct, as they mostly reward new business acquisition, sacrificing the importance of value-creation parameters such as persistency, quality of advice, servicing standards, and claims experience.
Authors’ View – Truly, such behaviour leads to transactional relationships instead of value-based, long-term customer relationships.
4. Sales are commission-driven, not value-led.
The general insurance broker channel highlights the widening gap between premium growth and distribution costs, as per the report. From FY23 to FY25, broker-sourced premiums rose 37%, while commissions surged 173%, with average commission rates doubling from 8.5% to 17%. Motor commissions climbed from 9% to 25% and retail health from 10% to 30%. Retail lines, contributing 54% of broker-placed premiums, accounted for nearly 78% of total commissions. A similar trend is seen in Life insurance commissions, where individual first-year premiums rose as high as 80%, averaging around 50% excluding direct and online channels.
The paper recommends shifting toward transparent, price-driven competition to strengthen market discipline, enhance affordability, and incentivize insurers to compete on innovation, operational efficiency, and customer value rather than commission structures.
5. High costs and uncertain service quality erode trust and limit coverage.
The paper observes that a significant share of premiums is absorbed by acquisition costs, straining affordability and leaving less for risk coverage and savings (reduced risk pool). The emphasis on premium acquisition often comes at the expense of post-sales service and customer support. A high proportion of complaints resolved in favour of policyholders may indicate deficiencies in service quality and claims handling. In FY26, 63% of complaints disposed of through Bima Bharosa were decided in policyholders’ favour. Dissatisfied policyholders could then approach the Insurance Ombudsman, where a further 75% of the cases disposed of were decided in favour of customers. The trend extended to the judicial level, with 54% of cases decided by consumer forums and courts also favouring customers in the same year.
Authors’ View – Taken together, these figures raise important questions about the quality of claims redressal by insurers. The fact that a significant number of claims are allowed by these grievance-settling bodies indicates poor domain knowledge among insurers. The issue is compounded by ambiguous policy wordings and terms and conditions that courts repeatedly flag in their decisions, but the industry pays little or no respect to those verdicts. Insurers and self-regulatory organizations such as the GI Council, which play a pivotal industry-wide role in standardizing and shaping policy wordings, terms and conditions, seldom draw adequately on these valuable judicial precedents to make policy provisions clearer and more customer-centric. Incorporating the principles emerging from such judgements into policy wordings could reduce ambiguity, minimize disputes and, ultimately, curb avoidable claim repudiations by insurers. The report rightly diagnosed that when customers perceive insurance as expensive, complex, and unreliable, voluntary demand remains subdued.
Distribution reforms must go beyond distribution channels and costs to address the very design and construction of insurance products. Insurance policies remain excessively complex and difficult for customers to understand, undermining trust and confidence in the industry. The need of the hour is to simplify policy wording, improve transparency, and make insurance products more customer-centric, ensuring that policyholders clearly understand what they are buying, what is covered, and what is excluded. The distribution reform must also ensure contract certainty through clear, unambiguous, customer-friendly policy wording so policyholders understand their rights, obligations, coverage, and exclusions upfront, leaving little room for ambiguity or disputes at the time of claim.
6. Large distributors’ market power limits insurers’ competitive options.
The report noted that some distributors receive higher commissions even though customers pay the same price across all channels. As business becomes concentrated among a few large distributors, their bargaining power increases. Insurers become more dependent on them, making it harder to negotiate commissions or explore lower-cost distribution models. Evidence from both life and general insurance points to the same trend: distribution payouts are increasingly driven by bargaining power rather than distribution effort. Banks account for nearly Rs. 68,000 crore in sampled corporate agency premiums, with higher payouts under multiple tie-ups. In health insurance, open architecture has strengthened corporate intermediaries’ bargaining power, with payouts reaching 93% in some corporate and group arrangements, without clear evidence of greater customer choice or better advice. A similar pattern exists in motor insurance, where brokers source nearly 49% of business. In comparison, OEM/dealer channels command commissions of up to 40% on new vehicles due to their point-of-sale dominance. This reflects a broader trend across distribution channels, though it varies by business line. The paper asks a legitimate question: Should distributor remuneration reward advisory and servicing effort, or bargaining power derived from control over customer access?
7. Regulatory arbitrage has created an uneven playing field for insurers and distributors.
The paper contends that the proliferation of insurance intermediary categories has created an uneven regulatory playing field, with disparities in entry requirements, compliance obligations and the scope of permissible activities. When entities performing substantially similar functions operate under different regulatory frameworks, it creates opportunities for regulatory arbitrage rather than fostering genuine innovation and fair competition. The paper suggests that a regulatory framework anchored in the principle of ‘same activity, same regulation’ would ensure a level playing field for market participants, strengthen the consistency and effectiveness of supervision, and simplify regulatory requirements, thereby improving the ease of doing business.
Authors’ View – Yes, the contention is conceptually sound in the Indian insurance context, but it needs qualification. The principle of “same activity, same regulation” can promote fair competition, reduce regulatory arbitrage, and simplify compliance, which is a welcome reform. However, its benefits depend on how the principle is executed. The central distinction is this: equal regulatory treatment should depend on the activity and the risks involved, not merely on the identity of the market participant. At the same time, identical rules for every participant may not be appropriate where their functions, risks, responsibilities or scale differ. For example, an insurance broker, a corporate agent and an insurance company may all participate in insurance distribution, but they do not perform identical functions or bear identical responsibilities. For example, a risk approached by a broker varies considerably from one approached by a corporate agent like a bank. Though the activity or risk remains the same, the treatment varies. In building insurance, an insurance broker’s expertise extends beyond arranging a policy. A competent broker helps identify and evaluate property risks, recommends appropriate risk-mitigation measures, and advises on the adequacy of the sum insured and policy terms.
Consider a bank acting as a corporate agent. If it arranges insurance for a mortgaged flat based on the outstanding loan amount rather than the actual cost of reconstructing the building, it may expose the customer to either over-insurance or under-insurance. The risk of mis-selling becomes particularly serious when the customer is led to believe that the property is adequately insured.
The fundamental distinction is that the loan amount reflects the lender’s financial exposure, whereas the sum insured should reflect the appropriate value of the property at risk. These are not interchangeable.
This distinction is especially important in metropolitan cities, where a flat’s market price may be exceptionally high because of its location, land value, amenities, and the facilities provided by the housing society. These factors can inflate the purchase price and, consequently, the loan amount. However, the cost of reconstructing the building may be substantially lower, since it does not include the land value or the premium attributable to location.
For example, a person approaches a bank for a loan of Rs. 50 lakh against a flat valued at Rs. 1.5 crore. The bank may ask the borrower to purchase an insurance policy for Rs. 50 lakh to safeguard its loan interest. However, whether this results in over-insurance or underinsurance depends on the actual reconstruction cost and the terms of the policy. Banks do not always advise on an adequate sum insured, and purchasing insurance can become a tick-box exercise. A broker’s real value lies in bridging this knowledge gap—ensuring the insurance cover reflects the property’s actual reconstruction cost, the applicable policy terms, and the customer’s risk exposure, rather than simply mirroring the loan amount. This illustrates why professional insurance broking is not merely a distribution function; it is also a risk-advisory service that protects both the customer’s interests and the integrity of the insurance transaction. There is a strong perception that Broker-sourced business may have fewer grievances, though this is not empirically validated.
A further risk of arbitrage arises if differentiated commission ceilings reward the legal form of the intermediary rather than the service performed. Channel migration or label shifting may then occur: an entity could restructure its distribution arrangements primarily to qualify for a more favourable payout limit, while performing essentially the same economic function. This would weaken the intended principle of regulatory neutrality.
Authors’ View – Regulatory flexibility should therefore be accompanied by safeguards that capture the economic substance of remuneration. An all-inclusive definition of commission should cover direct commissions and indirect benefits, including marketing support, infrastructure payments or advisory fees where they effectively reward distribution. Strong scrutiny of related-party arrangements and affiliate payments is also essential, particularly where dominant distributors may secure benefits outside formal commission contracts. Otherwise, uneven ceilings could encourage the very regulatory arbitrage that the reforms seek to eliminate.
8. Lack of transparency in product, insurer and distributor performance hinders informed purchasing decisions. The paper observes that digital adoption in insurance remains constrained, partly because customers lack simple, transparent and readily comparable information. Accordingly, the paper argues distribution reforms should focus on empowering customers through greater transparency, easier product comparisons, seamless digital access and the ability to make informed choices at every stage of the policy lifecycle.
Authors’ View –
Insurance brokers (33%) and individual agents (30%) account for the largest shares of insurance premiums, while direct online channels contribute only around 2% and web aggregators remain marginal. However, the assumption that digital channels necessarily offer greater transparency and facilitate fairer product comparisons is questionable. Web aggregators do not always provide a level playing field; the prominence given to certain products may be influenced by commissions, incentives, or commercial arrangements rather than customers’ best interests. This raises an important question: why has the rapid adoption of digital platforms by Indian households—from everyday essentials to high-value branded purchases—not translated into comparable growth in online insurance purchases? In banking, digital transactions have become integral to everyday life, yet insurance still lags in digital adoption.
The reasons lie partly in the nature of insurance itself. Unlike many consumer products, insurance is a complex, intangible financial commitment involving intricate policy terms, exclusions, conditions, and long-term implications. Customers often need explanation, reassurance, persuasion, and personalised guidance before buying. At present, digital platforms do not always inspire the same level of confidence as a trusted agent or broker who can explain the product, address concerns, and help customers make informed decisions.
The way forward is not to replace human intermediation with technology, but to combine the strengths of both. A technology-enabled, human-centric distribution model can improve product discovery, facilitate meaningful comparisons, strengthen transparency, and retain the personal guidance essential to building trust. The real opportunity lies in leveraging technology to empower intermediaries and enhance customer confidence—not merely in digitizing the sales process.
9. Customer power is absent in imperfect markets. The paper argues that individual insurance customers often lack the information and bargaining power to make informed choices and impact market conduct. Unlike perfect markets, insurance markets offer limited comparability of prices, quality, claims-settlement performance, and returns on savings-linked products. This information asymmetry makes it difficult to assess policy quality, weakening price–quality competition and allowing poor products and unfair practices to persist, ultimately creating scope for market failure. Distribution reforms should empower customers by enhancing transparency, enabling easy product comparisons, expanding digital access, and ensuring informed and meaningful choice at every stage of the policy lifecycle
Authors’ View – Insurance literacy must be strengthened to reverse this trend. The transition from an imperfect to a more efficient insurance market requires buyers to possess adequate knowledge and a fair understanding of insurance products, enabling informed choices and meaningful participation in the market. Therefore, insurance distribution must be driven by qualified, technologically proficient professionals equipped with the expertise to guide customers and facilitate informed insurance decisions.
Section 4 deals with Distribution Reforms. Let us discuss some of the points highlighted:
1. Digital platforms, interoperable public infrastructure and data-driven underwriting provide an opportunity to reduce transaction costs, improve transparency and enable customers to make informed choices. These are, at the moment, at best, mere hypotheses, not validated by empirical evidence.
Section 5: Strategic Framework for Reforms
One strategic point deals with eliminating scope for regulatory arbitrage –
The consultation paper identifies three complementary safeguards against regulatory arbitrage: equivalent treatment for equivalent activities, transparent premium flows, and verified contact between the customer and insurer before policy issuance.
Same Activity, Same Regulation. Equivalent distribution activities should attract comparable regulatory requirements, while recognising differences in responsibilities, risks and services.
Money should move where it belongs. Section 64VB of the Insurance Act, 1938 links the assumption of risk to the receipt of premium in the prescribed manner. The proposed emphasis on direct premium flows from customers to insurers is intended to improve traceability, accountability and clarity regarding the commencement of cover.
Direct and verified customer–insurer contact. Before issuing a policy, insurers should establish an appropriate verified connection with customers to confirm identity, product understanding and material disclosures. This may improve underwriting integrity and reduce disputes, although verification alone cannot eliminate mis-selling.
The proposal for verified customer–insurer contact requires particular scrutiny in the context of bancassurance and other incentive-driven distribution channels.
Authors’ View – Verified contact alone, however, does not eliminate the risk of mis-selling in bancassurance or NBFC-led insurance distribution.
Banks are increasingly becoming ill-equipped to sell insurance products in a manner that genuinely serves customers’ financial needs. Driven by incentives linked to business generation for insurance companies and mutual funds, bank employees’ behaviour has fundamentally shifted. From relationship managers to branch managers, customers are often persuaded—sometimes pressured—to channel their savings into insurance policies or mutual funds. At the same time, fixed deposits are discouraged, even when they may better suit the customer’s needs. This reflects a growing behavioural risk driven by misaligned incentives and the erosion of customer-centric banking. When sales targets take precedence over financial suitability, customers may end up with inappropriate products, undermining trust in both banks and insurers. Ultimately, this incentive-driven approach risks damaging the long-term interests of both institutions and the very customers they are meant to serve.
In this context, it is relevant to remember the famous quote by Mr Bimal Jalan, former RBI Governor, who said years ago ‘Banking was pure until bancassurance came into picture. I think the biggest mistake that has happened with the working of Banks is selling insurance.”. In the Indian context, insurance distribution reforms should focus on a broader view of how distribution creates value.
One strategy addresses ease-up entry and capital requirements: unlike insurers, distributors do not bear underwriting risk and therefore need no solvency margin. Their capital requirements should primarily ensure operational continuity and resilience during business stress. Reviewing these requirements could lower entry barriers and encourage more players to enter the insurance distribution space.
Authors’ View – A fair point, indeed. However, the entry-level capital requirement for insurance brokers should not be reduced drastically. Insurance broking is a specialised profession that depends on qualified personnel, technical capability and the resources to advise on complex risks. Excessively low entry requirements could undermine professional standards and the quality of client service.
An entry-level capital requirement of Rs. 10 lakh, if adopted for brokers may be counterproductive. Lowering the entry barrier too much could encourage underqualified players to enter the profession, undermining its credibility and potentially eroding the very institution the regulatory framework should strengthen.
Insurance broking requires investment, not merely a licence to operate.
Brokers need adequate capital to build their capabilities, attract and retain qualified talent, invest in technology and analytical tools, and acquire the sophisticated infrastructure necessary to handle complex risks.
The objective should therefore be to encourage the growth of capable, professionally managed broking firms—not simply to increase the number of market entrants by lowering the capital threshold. A profession entrusted with managing increasingly complex risks deserves a regulatory framework that safeguards its competence, credibility and long-term sustainability.
Reducing total expenses through a phased approach is a welcome reform. Capping commissions and rewards could set appropriate limits on remuneration, provided excessive payouts cannot be routed through alternative payment arrangements or distribution structures.
Cost of Doing Business and the Regulatory Risk of Rising Expenses
Commercial insurance distribution should be assessed for its cost to businesses as well as to policyholders. Unnecessarily high acquisition expenses can be passed into the cost of risk protection and, indirectly, into the wider economy. Transparent and proportionate remuneration is therefore particularly important for commercial lines.
The consultation paper points to a reversal in insurers’ expense discipline. The total expense ratio of private life insurers declined from 21.3% in FY15 to 16.5% in FY21, before rising to 20.2% in FY26. In private general insurance, the ratio fell from 30.3% in FY15 to about 25% in FY19 and then climbed to 32.1% in FY26. These trends raise questions about whether the flexibility introduced under the entity-level Expenses of Management (EoM) regime was accompanied by sufficiently effective safeguards and oversight.
Authors’ View – In relaxing commission controls and moving towards an entity-level EoM framework, IRDAI should examine whether it adequately assessed the risks to distribution costs and policyholder value. The subsequent rise in expenses warrants scrutiny of insurers’ commercial decisions and the regulator’s monitoring framework. Higher distributor payouts may fail to generate commensurate growth in coverage, favour high-volume or high-commission channels, and place pressure on premiums. The fundamental issue is not whether regulatory flexibility was desirable, but whether IRDAI adequately assessed the risks, established appropriate safeguards and monitored the consequences of relaxing commission controls. Regulatory reform must be accompanied by equally robust regulatory risk management.
Section 6 – Simplification of Architecture and Scope of Distribution
The paper notes that the existing distribution architecture is complex and fragmented, comprising multiple categories of distributors with differing entry and capital requirements, alongside inconsistent preferences and restrictions regarding their permitted scope of business. These structures evolved over time to facilitate market development, with each intermediary type assigned specific mandates and obligations. However, despite significant changes in market dynamics, the distribution framework has remained largely unchanged,
The paper identified significant variations in entry-point regulatory requirements across the eight existing types of insurance distributors, particularly in areas such as open architecture, capital requirements, accountability, non-insurance activities, digital functions, and other regulatory obligations. The paper observed that these differences have fragmented the regulatory architecture, creating scope for overlap and arbitrage among entities performing similar functions. Rationalizing distribution categories under a common, activity-based framework should be guided by one principle: same structure, same function, same norms.
The paper suggests seven principles for simplifying the distribution architecture:
- Regulatory consistency: Apply the same rules to entities with similar legal structures and business activities.
- Architecture clarity: Distinguish between open and closed distribution models.
- Public interest: Expand opportunities for non-competing businesses while aligning commissions with public interest.
- Competency enhancement: Strengthen, standardize and simplify training and testing for customer-facing sellers.
- Easier market entry: Reduce initial capital requirements and link them to subsequent business performance.
- Regulatory clarity: State regulatory expectations clearly and coherently.
- Accountability and transparency: Embed both into systems and processes by design.
Reforms in Distribution Architecture:
The paper proposes three distributor categories:
Insurance Distribution Entities (IDEs): Entities incorporated or registered under applicable laws, including companies, LLPs, cooperative societies, registered partnerships and trusts. IDEs will subsume existing intermediaries such as agents’ corporate entities, brokers, IMFs, web aggregators and CSC-SPVs, with Business Correspondent companies also proposed to be eligible for registration.
Insurance Distribution Persons (IDPs): will include existing agents, PoSPs, specified and designated persons, broker qualified persons, rural authorized persons, village-level entrepreneurs and authorized verifiers and will be classified into four categories:
- Insurance Agents: Individuals engaged by insurers, including individual business correspondents.
- Insurance Associates: Proprietorships, unregistered partnerships, SHGs and HUFs engaged by insurers.
- Specified Persons: Employees of Insurance Distribution Entities (IDEs) who sell or advise on insurance products.
- Point of Sale Persons (PoSPs): Individuals engaged by any IDE.
Key change: Existing agents, PoSPs, broker qualified persons and other authorized personnel will be consolidated under these four categories. PoSPs operating as legally constituted distribution entities, including MISPs, must register as IDEs and will no longer be classified as PoSPs.
Market Infrastructure Institutions (MIIs): Not-for-profit companies promoted by a group of insurers to ensure a level playing field, cost efficiency, and transparency for insurers and policyholders. Bima Sugam India Federation is one such MII, with scope for more in the future.
Authors’ View – Business Correspondent (BC) companies are entities that act as an extended arm of a bank, helping it provide banking and financial services to customers who may not have easy access to a bank branch, particularly in rural and underserved areas. Under IRDAI’s proposed distribution reforms, business correspondent companies could also register as Insurance Distribution Entities (IDEs), potentially enabling them to distribute insurance through their existing banking-service networks. But Business Correspondents (BCs) can be equally susceptible to mis-selling, much like corporate agents, given their close association with the banks they represent. Insurance is a complex financial product that demands specialised knowledge, risk assessment skills, and the ability to understand and address customers’ protection needs. It cannot be treated as just another banking product to be sold through an existing distribution network. Effective insurance distribution requires trained professionals who can explain policy features, exclusions, limitations, and suitability, thereby ensuring informed customer choices rather than sales driven by distribution incentives.
Bima Sugam: Technology Must Be Complemented by the Human Touch
Authors’ View – The idea behind creating a Market Infrastructure Institution (MII) such as Bima Sugam is to move insurance distribution from a fragmented, intermediary-dependent model towards a common, technology-driven marketplace. The objectives in the realm of the idea are laudable: rationalising distribution costs, expanding consumer access, enhancing transparency, and improving operational efficiency. In the Indian context, the proposal is particularly significant for a growing, tech-savvy population.
But what about the large segment of the population that is not tech-savvy? How do we ensure that the benefits of digital insurance reach those who may lack digital literacy, confidence, or the ability to navigate an online platform?
Insurance is not merely a product that consumers search for and purchase. It is a product that often requires explanation, persuasion, and solicitation. Unlike many other financial products, its value may not become apparent until a claim arises—often at a time of distress. Moving from a push-driven to a pull-driven insurance market, therefore, depends not merely on technology availability, but on the experiences the insurance sector creates for its customers.
Can a technology platform, however sophisticated, by itself inspire the confidence required to make insurance a trusted purchase? Bima Sugam’s credibility as a marketplace will ultimately depend not only on the efficiency of its technology, but also on the trust it earns through the quality of the customer experience.
The challenge is particularly evident in claims settlement. Customers often encounter terse, standardised digital communications when their claims are rejected, leaving them confused about the reasons and uncertain about their options. Such experiences can undermine trust in the entire insurance ecosystem, irrespective of how seamless the purchase process may have been.
Technology can simplify transactions, improve accessibility, and reduce costs. But empathy, reassurance, nuanced explanation, and assistance in navigating complex situations, particularly in financial distress or exigency, require meaningful human intervention. For many customers, particularly those unfamiliar with digital systems, a knowledgeable and empathetic person remains an essential bridge between the insurance product and the protection it promises.
Bima Sugam’s success will depend not merely on technological efficiency but on its ability to create a trusted and accessible insurance marketplace. A hybrid model combining digital infrastructure with knowledgeable intermediaries and responsive customer-service professionals can help bridge the gap between digital access and meaningful insurance protection. Ultimately, the transition from insurance being sold to insurance being voluntarily purchased will depend on informed customers, dependable service and fair claims settlement.
Public Insurance Registry: The Business-Facing Digital Infrastructure
The proposed Public Insurance Registry (PIR) is envisaged as foundational digital public infrastructure for the insurance sector, with a business-facing role complementary to customer-facing platforms such as Bima Sugam. Through standardised information exchange, verification and discovery, it aims to reduce information asymmetry, improve interoperability and support transparency, efficiency, market access and competition. Its proposed benefits include lower transaction costs, wider inclusion and more informed insurance decisions. PIR remains a proposal under consultation rather than an established operational system.
Authors’ View – PIR’s effectiveness will depend on the quality, integrity and accessibility of the information it enables insurers and intermediaries to exchange. Digital infrastructure alone cannot deliver informed choices unless customers and market participants trust the system, understand the information provided and receive appropriate assistance. Strong data governance, safeguards against biased product presentation and inclusive access will be essential if PIR is to strengthen market conduct rather than merely digitise existing weaknesses.
Make Broking a Separate Category
Insurance broking is a well-established global distribution model that plays a vital role in market development, particularly in non-life insurance. Beyond procuring business, brokers provide valuable risk management, underwriting and claims advisory services.
In India, however, inadequate supervisory oversight and weak market conduct have, at times, reduced broking to little more than agency business, creating conflicts of interest. Brokers must introspect, explore underserved markets, develop innovative solutions and ensure that their remuneration reflects the value of their services.
Clubbing brokers with corporate agents, OEMs, IMFs, web aggregators and CSC-SPV would be a policy mistake. These channels differ fundamentally in their roles, capabilities and service propositions. The priority should be to strengthen broker-led, advisory-driven distribution through stringent regulatory oversight, while addressing commission-driven practices and mis-selling across other channels. Brokers deserve a distinct regulatory identity, accompanied by greater accountability and demonstrable value creation.
Further Priorities for IRDAI: Professional Competence, Public Awareness and Regulatory Accountability
Recalibrating the economics of distribution is necessary, but the success of these reforms will also depend on how effectively IRDAI strengthens the foundations of insurance education, market access, regulatory responsiveness and consumer protection. Five areas deserve particular attention.
Rebuild training as the foundation of insurance distribution. Insurance is a technical contract, not an ordinary consumer product. An intermediary who does not understand policy conditions, exclusions, underwriting, claims procedures and the suitability of cover cannot provide meaningful advice. Over the years, concerns have grown that training and certification requirements for certain categories of sellers have become less rigorous, with compliance sometimes reduced to a procedural formality. Technology-enabled onboarding and licensing must not become substitutes for genuine learning. IRDAI should prescribe robust, role-specific training, independent assessments, periodic refresher programmes and demonstrable continuing professional development. Improving the quality of advice is as important as controlling its cost.
Make insurance awareness a nationwide, sustained initiative. Insurance literacy cannot be built through occasional advertisements, seminars or conferences concentrated in major cities. Public awareness must reach villages, smaller towns, self-employed households, MSMEs and other underserved segments through local-language campaigns, educational institutions, community organisations and trusted grassroots networks. IRDAI, the insurance councils, insurers and intermediaries should jointly establish measurable awareness objectives, with outcomes assessed through understanding, appropriate coverage and claims experience rather than event counts or publicity expenditure alone.
Make regulatory licensing transparent and time-bound. A regulator must not only supervise the market; it must also enable competent participants to enter and serve it. Applicants for intermediary registrations and licences have raised concerns about protracted processing, uncertainty over requirements and difficulty obtaining timely responses to queries. These concerns merit a systematic review. IRDAI should publish service-level standards and clear turnaround times for each stage of licensing, renewal and approval; provide digital application tracking; communicate deficiencies promptly; and establish an effective escalation mechanism. Unnecessary administrative delays can discourage capable new entrants, restrict competition and undermine the objective of expanding insurance reach.
Strengthen accountability for mis-selling. Commission caps alone will not eliminate unsuitable selling practices. Where investigations establish deliberate mis-selling, concealment of material exclusions, coercive sales or repeated violations, regulatory action should be swift, proportionate and sufficiently deterrent. Depending on the seriousness of the misconduct, this may require corrective directions, customer remediation, restrictions on distribution activity, suspension or cancellation of authorisation, and accountability for responsible individuals. Enforcement outcomes should also be communicated transparently, consistent with due process, so that market participants understand the consequences of misconduct.
Modernise grievance redressal, particularly for senior citizens. The effectiveness of insurance regulation is ultimately tested when a policyholder seeks assistance with a claim or complaint. IRDAI should make grievance processes simpler to navigate, ensure prompt and meaningful responses and improve visibility into the progress of complaints. Insurance Ombudsman proceedings should provide convenient video hearings, telephone assistance and accessible document-submission options wherever feasible, reducing avoidable travel for elderly customers, persons with disabilities and policyholders living far from hearing locations. In-person hearings should remain available where necessary or preferred, but should not be the default burden placed upon vulnerable complainants.
Together, these measures would address the quality and integrity of insurance distribution, not merely its price. A sustainable market needs knowledgeable intermediaries, informed customers, accessible regulatory processes, credible enforcement and grievance mechanisms that earn public trust.
Conclusion: Recalibrating the economics of insurance distribution cannot happen in isolation. It must go hand in hand with developing a healthy insurance market, undermined in recent years by aggressive price competition and flawed underwriting practices. The paper raises relevant issues but falls short of explaining how to strengthen the market itself.
Penetration is a key marketing objective, but how a product is delivered matters as much as what is delivered. In insurance, customer experience is shaped largely by seamless and fair claims settlement, trust, and recognition of customer loyalty. When products are close substitutes, distribution equity-built on relationships, service quality and reliability-can become a key differentiator.
The real test is whether distributors create lasting customer value rather than merely facilitate transactions. Every interaction should strengthen trust and demonstrate service quality, turning insurance from a push product into a potential pull product. Persistency is central to this effort, given its strong association with profitability and the cost of acquiring new customers.
The fundamental question remains: can we recalibrate the economics of insurance distribution without first building a robust, sustainable and customer-centric insurance market?
Authored by:
Dr. Abhijit K. Chattoraj
Advisory Board Member
Dr. Rakesh Agarwal
Editor
The Insurance Times
