IRDAI’s consultation paper on Recalibrating Economics of Insurance Distribution has triggered unusually strong opposition from insurance intermediaries. The regulator proposes tighter commission caps and lower expense limits with the objective of reducing distribution costs, improving policyholder value and curbing mis-selling. The intention is understandable, but the consequences require deeper examination.
The Insurance Brokers Association of India, representing 798 licensed brokers, has warned that some brokerages could face revenue reductions of 60–70 per cent. It has also raised concerns about employment, servicing capability and distribution reach, particularly in smaller towns. Brokers sponsored 14.81 lakh of India’s 27.18 lakh point-of-sale persons as of March 2025, demonstrating the scale of this distribution ecosystem.
There is certainly a case for reviewing commissions. IRDAI data reportedly shows that premiums sourced through general insurance brokers increased 37 per cent between FY23 and FY25, while commissions rose 173 per cent. Such divergence deserves regulatory scrutiny.
However, simply reducing commissions cannot be assumed to benefit policyholders. Will insurers pass the savings through lower premiums or improved benefits? More importantly, distribution has a cost. Intermediaries acquire customers, explain complicated products, arrange renewals and frequently assist policyholders during claims.
Mis-selling should be attacked directly through suitability requirements, accountability, disclosure and penalties. Interestingly, IBAI itself supports measures against compulsory bundling and commission claw-backs for proven mis-selling.
IRDAI has received more than 650 responses to its consultation, indicating the seriousness of the issue. The regulator should therefore undertake a transparent impact assessment before finalising the framework.
India needs lower distribution costs, but it also needs wider insurance penetration. Reform should eliminate excessive remuneration and mis-selling without making genuine insurance distribution economically unviable. That balance will ultimately determine whether recalibration strengthens the industry or unintentionally weakens its reach.
Authored by:
Ram Gopal Agarwala
Editor-In-Chief
The Insurance Times
