India’s insurance regulator is proposing a sweeping overhaul of insurance distribution and commission structures, aimed at reducing costs and improving insurance penetration. The Insurance Regulatory and Development Authority of India (IRDAI) has proposed reversing the removal of commission caps introduced in 2023, after distributor remuneration grew around four times faster than premiums and industry expense ratios increased. Meanwhile, insurance penetration has remained at just 3.8% of GDP.
Under the proposals, commissions would be linked more closely to product complexity and servicing requirements. Health insurance commissions could be capped at 15% in the first year and 5% on renewals, while banks and brokers selling life insurance could receive between 5% and 20% of first-year premiums, compared with more than 40% under current arrangements for some products. IRDAI has also proposed zero commission on third-party motor insurance, compared with current rates of around 25% to 50%. The proposals have already affected distributor-focused stocks, with PB Fintech losing nearly 40% in market value following the announcement.
The larger question is whether lower distribution costs will translate into stronger insurance demand. Reuters’ Breakingviews analysis notes that affordability may be one barrier, but many Indian households still view insurance primarily as a savings product rather than protection, putting it in competition with mutual funds and equities for household savings. With individual life-policy numbers having stagnated despite rising incomes, the regulatory overhaul may address distribution economics, but increasing insurance coverage will also depend on changing consumer behaviour and improving the perceived value of insurance protection. IRDAI has invited stakeholder feedback until October 25.
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