Stories
IRDAI Flags High Bank Insurance Payouts, Questions Commission-Driven Sales
- •IRDAI raises concerns over high payouts to banks in multiple tie-up insurance distribution, questioning if remuneration reflects effort or control over customer access.
- •The regulator's consultation paper argues the current distribution model rewards premium collection over customer value and long-term policyholder outcomes.
- •Banks accounted for nearly –68,000 crore of sampled corporate-agency premium in life insurance, with higher payouts in multiple tie-ups suggesting competition for distribution relationships drives remuneration.
- •IRDAI highlights a transparency problem, noting customers often lack visibility into embedded commissions and have limited ability to influence distribution costs, leading to potential unsuitable sales.
- •Proposed reforms aim to tie commissions to effort and complexity, introduce prescriptive limits, and shift towards a market where insurance is "purchased" by informed customers rather than merely "sold."
Key Questions Answered
The Insurance Regulatory and Development Authority of India (IRDAI) noted that payouts to banks can be significantly higher in multiple tie-up arrangements. The regulator questioned whether these high payouts reflect actual sales effort or the distributor's control over customer access, rewarding premium collection over customer value and affordability.
Distributor remuneration in a representative sample of the life insurance corporate-agency channel rose 125% between FY23 and FY25. In contrast, new business premium grew by only 28% over the same period, with distributor remuneration accounting for nearly 27% of first-year premium alongside additional rewards and incentives.
IRDAI has proposed prescriptive commission limits based on product complexity and sales effort, direct premium payments from customers to insurers, and a digital pull-based alternative like Bima Sugam. The regulator also aims to reduce distribution layers and publicly disclose expense and commission performance.
