IRDAI fines Reliance General Insurance Rs 1 crore over disguised commissions
The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a penalty of Rs 1 crore on Reliance General Insurance for routing unauthorised payouts in the guise of marketing and consumer awareness expenses, effectively amounting to disguised commissions. The order was issued following the regulator’s examination of the insurer’s transactions spanning FY2019 to FY2021.
According to IRDAI, the insurer channelled payments to insurance brokers, agents, corporate agents and even unlicensed entities under heads such as consumer awareness, marketing and advertising. These expenses, the regulator found, were not genuine promotional spends but mechanisms to bypass commission-related regulations.
The watchdog observed that such practices undermine transparency in insurance distribution and violate the intent of commission and expense management norms laid down under the Insurance Act and IRDAI regulations. By masking commissions as marketing expenses, insurers risk distorting competition and encouraging mis-selling.
The penalty underscores IRDAI’s tightening scrutiny of expense practices amid broader efforts to rein in high acquisition costs and improve governance standards in the insurance sector, particularly at a time when affordability and fair conduct are central to the “Insurance for All” agenda.
Insurers seek clarity from IRDAI on director overlap restrictions
Insurance companies, through industry bodies such as the Life Insurance Council and the General Insurance Council, have approached the Insurance Regulatory and Development Authority of India seeking clarity on new provisions restricting common directorships across financial entities.
The provision, introduced through recent amendments to insurance laws, bars a director or officer of an insurance company from simultaneously holding a similar position in another insurer in the same line of business, a bank, or an investment company. Industry representatives argue that the clause could significantly affect bank-promoted insurers, where several directors currently serve on both the bank and insurance company boards.
According to sources, the councils wrote to the regulator around two weeks ago, requesting interpretational guidance to ensure compliance. While the restriction originates from government-led legislative changes, insurers believe the regulator’s clarification is essential, particularly on transitional arrangements and applicability to existing board structures.
The industry maintains that it supports stronger governance and conflict-of-interest safeguards but has sought clarity to avoid unintended disruptions. The regulator may, in turn, consult the government on interpretative aspects of the provision before issuing guidance to insurers.
IRDAI gains sharper powers to curb mis-selling through commission rules
The Insurance Regulatory and Development Authority of India (IRDAI) is set to tighten norms aimed at preventing mis-selling, following expanded powers granted under the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025. The amendments empower the regulator to frame stricter rules on commission disclosure, remuneration limits and conflicts of interest in insurance distribution.
Under changes to Section 40 of the Insurance Act, 1938, IRDAI can now prescribe how commissions paid to agents and intermediaries are structured, capped and disclosed to policyholders. This opens the door for mandatory disclosure of commission components embedded in insurance products, enhancing transparency for customers.
The Bill also strengthens conflict-of-interest provisions, particularly in bancassurance. Directors or officers of insurers are barred from holding similar positions in banks or investment companies, limiting the scope for board-level influence over product distribution. For intermediaries such as brokers and web aggregators, the regulator will enforce restrictions through regulations and fit-and-proper norms.
Together, these measures significantly enhance IRDAI’s ability to address mis-selling, align distributor incentives with policyholder interests, and push the industry towards cleaner governance and fairer sales practices.
Government considering tweaks to insurance commission structure
The government is evaluating changes to the commission structure for insurance distributors, including banks, corporate agents, individual agents and aggregators, amid concerns that high acquisition costs are hurting affordability and insurance penetration.
M Nagaraju, Secretary in the Department of Financial Services, said regulatory and policy-level discussions are underway to review distributor commissions. The issue has gained urgency after the government rationalised goods and services tax on individual life and health insurance premiums to zero, even as premiums remain elevated due to high distributor payouts.
A committee under the Life Insurance Council has reportedly recommended capping or deferring commissions to reduce upfront acquisition costs. At present, insurers have flexibility to fix product-wise commissions as long as they remain within overall expense limits.
The Reserve Bank of India’s Financial Stability Report has also flagged high distribution costs as a constraint on expanding insurance coverage, noting the gap between insurance density and penetration. Policymakers see commission reform as a key lever in advancing the “Insurance for All by 2047” objective by improving affordability and curbing mis-selling incentives.
23 insurers under IRDAI lens for breaching expense limits
The Insurance Regulatory and Development Authority of India has placed 23 insurers under regulatory scrutiny for exceeding prescribed limits on expenses of management, with commissions emerging as the primary area of concern. The insurers under examination include eight life insurers and 15 non-life insurance companies, according to sources familiar with the matter.
The regulator has sought detailed explanations from these entities on violations of the IRDAI (Expenses of Management, including Commission of Insurers) Regulations, 2024. The framework sets expense caps based on the nature of products, premium-paying terms and duration of business. IRDAI is currently reviewing submissions and is expected to follow a structured supervisory process, including hearings, before deciding on any penal action.
Regulatory concern has intensified following a sharp rise in commission payouts during FY25. Overshooting expense limits, IRDAI believes, not only signals non-compliance but may also point to potential mis-selling, a persistent conduct risk in the insurance sector.
Industry data underscores the scale of the issue. Gross expenses of management rose to Rs 1.38 lakh crore in FY25, accounting for 15.6 per cent of total gross premiums. Commission payouts alone climbed 18 per cent year-on-year to Rs 60,800 crore. In the non-life segment, gross commission expenses increased to Rs 47,266 crore from Rs 39,601 crore in FY24.
The heightened scrutiny reflects the regulator’s broader push to rein in distribution costs, strengthen compliance discipline and ensure that customer interests are not compromised by aggressive commission-driven sales practices.
