Stories
IRDAI Proposes Sweeping Commission Caps to Protect Policyholders, Curb High Costs
- •IRDAI proposes reintroducing hard commission caps across life and general insurance, reversing the flexible Expenses of Management (EoM) framework from 2023.
- •The regulator noted that commissions and distributor payouts have surged since caps were removed, with average first-year premium commissions reaching 14% to 51% in life insurance and up to 93% in some health insurance segments.
- •Distributor remuneration grew 125% between FY23 and FY25, while new business premium rose 28%, with payouts now accounting for roughly 27% of first-year premiums.
- •Lower commission ceilings are proposed for loan-linked and bundled insurance products, citing limited selling effort and customer comparison opportunities.
- •IRDAI aims to shift competition towards product quality, pricing efficiency, and customer outcomes, inviting public comments until October 25, 2026, on the "Recalibrating Economics of Insurance Distribution" initiative.
Key Questions Answered
The IRDAI proposed hard caps because the insurance sector became increasingly commission-led after the 2023 Expenses of Management framework removed previous limits. This led to sharp commission increases, with life insurance first-year commissions reaching up to 51% and general insurance touching 93%, driving up costs and hurting policyholders.
Between FY23 and FY25, new business premiums for a representative sample covering most life insurance corporate agency businesses rose by 28%, while total distributor remuneration surged by 125%. Distributor payouts currently account for approximately 27% of first-year premiums.
The IRDAI has proposed sharply lower commission ceilings for insurance sold alongside loans and credit facilities. The regulator noted that these bundled products require limited selling effort and leave customers with little opportunity to compare alternatives.
