Please click here to download the Prism as a PDF.
Insurance Regulatory and Development Authority of India consultation paper: Recalibrating economics of insurance distribution
On September 23, 2026, the Insurance Regulatory and Development Authority of India (“IRDAI”) released a 2 (two) part public consultation paper titled ‘Recalibrating Economics of Insurance Distribution’ (“Consultation Paper”). The Consultation Paper seeks to recalibrate the regulatory framework governing insurance distribution with a view to promoting the growth and development of the insurance sector.
Against this backdrop, the Consultation Paper proposes certain key reforms, including:
- simplification of the insurance distribution framework;
- revisions to the Expense of Management (“EoM”) and commission framework; and
- strengthening safeguards against mis-selling of insurance products.
The proposed reforms are aligned with the broader objectives of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 (which came into effect on February 5, 2026). These objectives include accelerating the development of the insurance sector, strengthening policyholder protection, improving ease of doing business and enhancing regulatory transparency.
IRDAI has invited public comments on the Consultation Paper by October 25, 2026.
Key proposals of the Consultation Paper
Simplification of the distribution architecture and scope of distribution
The Consultation Paper observes that the existing distribution architecture is highly complex and fragmented, with several types of distributors, varied entry and capital requirements, and restrictions on their scope of operations.
With the objective of increasing competition in the distribution segment, IRDAI has proposed measures to simplify the distribution architecture, ease entry requirements, create additional business and income opportunities and allowing other forms of services. Certain key reforms relating to distribution architecture are set out below.
Simplified distribution architecture
IRDAI, guided by the principle of ‘same structure, same functions, same norms’, proposes to categorise existing insurance distributors into the following 3 (three) classes:
- Insurance Distribution Entities (“IDEs”): IRDAI has proposed that corporate agents, insurance marketing firms (“IMF”), web aggregators, common service centre – special purpose vehicle, and business correspondent companies will fall under this class.
Point for Consideration: The Consultation Paper introduces the concept of business correspondent companies as new categories of IDEs. Clarity would be required on the nature, scope and eligibility criteria of such entities.
- Market Infrastructure Institutions (“MIIs”) for insurance: MIIs are proposed to be not-for-profit companies promoted by a group of insurers. Bima Sugam India Federation is an example of an MII.
- Insurance Distribution Persons (“IDPs”): The current framework has different categories of insurance agents and their scope of business, eligibility criteria, training requirements vary significantly.
The Consultation Paper proposes to bring uniformity and recognize the following 4 (four) types of IDPs:
- Insurance Agents, comprising individuals engaged by insurers;
- Insurance Associates, comprising proprietorship firms, unregistered partnership firms, Self Help Groups and Hindu Undivided Families engaged by insurers;
- Specified Persons, comprising employees of IDEs selling or advising on insurance products; and
- Point of Sale Persons (“PoSP”), comprising individuals engaged by any IDE.
Easing entry and capital requirements
Under the existing framework, the capital and net-worth requirements vary substantially across IDEs and are generally not related to business volume. While IMF and web aggregators have relatively lower capital requirements, insurance brokers are subject to capital requirements ranging from INR 75,00,000 (Indian Rupees seventy-five lakh) (~USD 78,314 (US Dollars seventy-eight thousand three hundred and fourteen)) to INR 5,00,00,000 (Indian Rupees five crore) (~USD 522,193 (US Dollars five hundred twenty-two thousand one hundred and ninety-three)).
The Consultation Paper proposes to standardise and reduce the capital requirement at the entry level and link ongoing capital requirement to the business volume.
- IDEs:
- Initial capital: INR 10,00,000 (Indian Rupees ten lakh) (~USD 10,443(US Dollars ten thousand four hundred and forty-three)).
- Ongoing capital: Capital equivalent to 0.1% of the commission and other insurance related income earned in the previous financial year, subject to a minimum of INR 10,00,000 (Indian Rupees ten lakh) (~USD 10,443 (US Dollars ten thousand four hundred and forty-three)) and a maximum of INR 10,00,00,000 (Indian Rupees ten crore) (~USD 1,044,277 (US Dollars one million forty-four thousand two hundred and seventy-seven)).
- Net worth: Positive net worth to be maintained at all times.
Point for Consideration: The proposed reform on lower and uniform capital at the entry level for IDEs is a welcome proposal and is aligned with the objective of ease of doing business.
Expansion of the scope of business for IDEs
IRDAI has observed that customers increasingly seek a one stop solution for their financial needs and that restricting intermediaries to only insurance related activities limit their ability to meet the requirements of customers.
The Consultation Paper proposes that IDE and IDP would be permitted to undertake the sale of other financial and non-financial products or services, subject to compliance with the applicable law.
Point for Consideration: The proposal on IDEs selling other financial products is noteworthy and could make IDEs one stop solution for financial and non-financial services for customers.
Tie-ups with insurers
The Consultation Paper proposes to provide IDEs the option to adopt open architecture, under which they would be permitted to sell products of multiple insurers without any prescribed limit on number of insurance tie-ups.
This is a significant change from the existing framework. While insurance brokers do not have restrictions on the number of tie-ups, on the other hand, corporate agents are currently permitted to have tie-ups with up to 9 (nine) insurers per category (life, general and health), subject to an overall limit of 27 (twenty-seven) insurers for composite corporate agents. Further, IMFs are currently permitted to tie up with 6 (six) insurers in each category.
Additionally, IDEs such as corporate agents (general) are currently restricted to selling general insurance products (retail and commercial lines) with a total sum insured not exceeding INR 5,00,00,000 (Indian Rupees five crore) (~USD 522,193 (US Dollars five hundred twenty-two thousand one hundred and ninety-three)) per risk for all insurances combined. It is now proposed that IDEs will be permitted to sell all products without any limit on insurance risk cover.
Other key reforms in relation to the distribution architecture
The Consultation Paper also proposes the following reforms:
- IDPs engaged by the insurer: IDPs of insurers will be under closed architecture, but they can sell products of another insurer in a non-competing segment. For example, an IDP can represent 1 (one) life insurer, 1 (one) general insurer, 1 (one) health insurer and 1 (one) of each of other mono-line insurers. However, IDP cannot sell competing product of 2 (two) insurers.
- IDPs engaged by IDEs: Specified Persons employed by IDEs and PoSPs engaged by IDEs can sell products offered by their respective IDE. PoSPs cannot work with multiple IDEs.
- Distribution of insurer’s group companies’ product: An insurer is permitted to distribute insurance products of another insurer within its corporate group, provided such products are in a non-competing insurance segment.
- Distribution of insurance products by hospitals and automobile garages: IRDAI proposes to permit hospitals to distribute health insurance and automobile garages (non-dealer) providing repair services to distribute motor insurance products by becoming an associate of an insurer.
Expenses of management framework
Evolution of the commission and EoM framework
Under the IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016 (“2016 Commission Regulations”), the maximum commission payable to distributors was capped as a percentage of premiums earned across different categories of insurance products. The 2016 Commission Regulations were thereafter replaced by the EoM limits for insurers.
The EoM framework is currently governed by the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024 (“EOM Regulations”), and there are no per-policy commission limits prescribed per product. Instead, insurers are permitted to design their commission structures within the overall applicable EoM limits.
The overall EoM limits: (a) for general insurers, is capped at 30% of Gross Written Premium in India (“GWP”) in a financial year; (b) for standalone health insurers, is capped at 35% of GWP in India in a financial year; and (c) for life insurers, are computed based on the aggregate sum of specified percentages across different premium categories, subject to additional conditions. In this context, currently GWP includes: (a) gross direct premium written in India; and (b) inward reinsurance premium (i.e., premium on reinsurance accepted).
The Consultation Paper proposes the following reforms:
- Revision for Calculation of EoM: EoM calculations are proposed to be based on percentage of Gross Direct Premium Income (“GDPI”) instead of GWP, thereby excluding inward reinsurance from the calculation. To illustrate: if an insurer has gross direct premium of INR 800,00,00,000 (Indian Rupees eight hundred crore) (~USD 83,540,650 (US Dollars eighty-three million five hundred forty thousand six hundred and fifty)) and inward reinsurance premium of INR 200,00,00,000 (Indian Rupees two hundred crore (~USD 20,885,162 (US Dollars twenty million eight hundred eighty-five thousand one hundred and sixty-two), currently its EoM base (GWP) would be INR 1,000,00,00,000 (Indian Rupees one thousand crore) (~USD 104,425,812 (US Dollars one hundred four million four hundred twenty-five thousand eight hundred and twelve) ). Under the proposed GDPI approach, the EoM base would instead be INR 800,00,00,000 (Indian Rupees eight hundred crore) (~USD 83,540,650 (US Dollars eighty-three million five hundred forty thousand six hundred and fifty)).
In the case of life insurance, EoM will be total expenses as a percentage of total premium.
Point for Consideration: The revision in calculation of EoM will limit the expense pool of insurers.
- Reinsurance payments: Any payments other than claims settlement received from a reinsurer by a cedant will fall in the category of reinsurance commission and cannot be netted off against commissions or expenses for the purpose of computation of EoM.
- Cost audit: Currently, there is no mandatory cost audit requirement for insurers. The Consultation Paper proposes that the cost audit of all expenses of insurers, including all pay-outs and non-monetary incentives to intermediaries, be made mandatory. IDEs with insurance related revenue above INR 100,00,00,000 (Indian Rupees one hundred crore) (~USD 10,442,774 (US Dollars ten million four hundred forty-two thousand seven hundred and seventy-four)) will also be required to have a cost audit.
- Compliance with EoM: Insurers that have not complied with the EoM limits may face consequences such as restrictions on new product launches, dividend distribution, and in extreme cases, restrictions on new business through the channel responsible for the overrun. The EoM norms will be reviewed alongside anticipated product reforms during the financial year 2028, providing insurers and distributors time to adapt to the reformed framework.
Point for Consideration: In August 2026, IRDAI passed orders against 4 (four) insurers for exceeding permissible EoM limits under the EOM Regulations. The insurers were warned and directed not to open any new place of business for a period of 6 (six) months. They were also directed to present the orders before their respective boards. The directions of IRDAI in the said orders and the prescription in the Consultation Paper set a clear regulatory intent for insurers to comply with the EoM limits prescribed by the regulator.
Distribution commission framework
The Consultation Paper highlights that given that acquisition cost forms the major component of insurer expenses, distribution costs must be controlled to achieve meaningful expense reduction. As the current EoM norms with flexibility on commissions have not succeeded in controlling these costs, the Consultation Paper now proposes to reintroduce commission caps with strict implementation and regulatory oversight.
The Consultation Paper proposes a recalibration of the commission framework based on the following key principles:
- Maximum commission limits: The Consultation Paper sets out detailed commission grids (as set out in Annexure 1 below) for maximum commission payable on insurance products.
- Commissions to be all inclusive: The EOM Regulations define ‘commission’ to include remuneration, or reward, by whatever name called, paid by an insurer to an insurance agent, or insurance intermediary for soliciting or procuring or transacting insurance business. The Consultation Paper states that commission should be all-inclusive, specifically covering direct commission, incentives, awards, reimbursement of selling expenses, brand value payments to related parties, and non-cash incentives such as gifts and visits. Any payment made to distributors, by any name, should come under the category of commissions.
Point for Consideration: The Consultation Paper prescribes a maximum commission limit (as set out in Annexure 1) and as noted above, the definition of ‘commissions’ encompasses rewards, expenses, and similar payments. Consequently, the proposal effectively caps the rewards and other expenses payable to distributors as well. Under the current framework, there is no per-product cap on commissions and rewards; instead, distribution costs are subsumed within the overall EoM limit. Notably, the IRDAI has proposed a 2 (two) pronged approach to curb excessive commissions: (a) revising the methodology for calculating the EoM limit applicable to insurers; and (b) introducing maximum commission caps on a per-product basis for each insurance product.
- Low commission on mandatory products: Mandatory and near-mandatory products (for example, third-party motor insurance and insurance packaged with credit) should have nil or very low commission limits.
- Commission on complex products: Products that are complex or difficult to sell may have higher commission limits as compared to simpler products. Sale of products in under-served areas may have rewards over and above the normal commission limits.
- Group insurance: Commission on group insurance products should be lower than that on products for individuals.
- Renewal commission on high demand product: Renewal of products with high demand and awareness should have lower commissions than first-time sales.
Transparency and market conduct and policyholder safeguards
The Consultation Paper proposes the following measures to improve transparency:
- Disclosures: Insurers should disclose their commission policies and structures in a simple and accessible form on their websites. Large distribution entities should also disclose their commission structures.
- Payment of Premium directly to the insurer: Premium transfer should be undertaken directly from the customer’s account to the insurer’s account. Third-party payments should not be accepted. Funds flow between the insurer and reinsurer (including commission, ceding commission, and claim payments) should also happen directly, and not through a broker’s account.
- Prohibited incentives and compulsory bundling: Any volume-linked or reward-linked incentive for bank or Non-banking Financial Companies (“NBFC”) staff selling insurance is to be prohibited. Further, compulsory bundling of insurance products by banks and NBFCs, registered with the IRDAI as IDEs, along with their products and services, is proposed to be prohibited. However, package offers with specific gains to the customer are proposed to be allowed. The Consultation Paper sets out illustrative examples of acceptable package offers, including, inter alia:
- complimentary group term insurance for depositors maintaining deposits with a bank above a threshold, or for borrowers; and
- an offer to include a bank’s customer in a group health insurance scheme negotiated by the bank with an insurer at a specified premium, accompanied by disclosure of the commission that the bank will get out of the premium.
- Dark patterns: Dark patterns (practices or deceptive design patterns using user interface on any platform to mislead or trick users to do something they originally did not intend or want to do) to be prohibited under the insurance regulations.
- Outsourcing: Outsourcing of any activity by insurers to related party of distributors is not permitted unless there is a strong imperative to do so with certain In cases where distributors and insurers are related parties, a disclosure must be made on the respective website of both parties and the IRDAI should be informed of the financial arrangements.
Streamlining motor insurance
The Consultation Paper proposes the following reforms for motor insurance:
- promote digital purchases by customers through MIIs such as Bima Sugam, which should not charge a fee of more than 5% of the premium;
- all motor insurance service provider (“MISP”) dealers who meet the structure of an IDE (entities incorporated under the Companies Act, 2013 or registered under any other law) must register as an IDE if they want to sell insurance products; and
- all other MISP dealers who do not meet the IDE structure must tie up as a PoSP of an IDE or become an associate of a single insurer.
Conclusion
The Consultation Paper reflects a significant effort by the IRDAI to recalibrate the economics of insurance distribution in India. If implemented, the proposed reforms could fundamentally reshape the distribution norms by simplifying the existing framework, rationalising costs, aligning distribution incentives with policyholder interests, and leveraging digital infrastructure to enhance efficiency and access. Insurers, intermediaries and other stakeholders should therefore carefully evaluate the potential impact of the proposals and consider participating in the consultation process.
From a regulatory perspective, the Consultation Paper marks only the beginning of the rule-making process. Under the Insurance Act, 1938, the IRDAI is required to follow a prescribed consultation procedure before finalising regulations.
Accordingly, the present Consultation Paper should be viewed as the first stage in a broader regulatory process. Following the close of the consultation period on October 25, 2026, the IRDAI is expected to consider stakeholder feedback and may subsequently issue draft regulations, which would then be followed by final notification.
Annexure 1
General insurance – Maximum commission limits# (as percentage of premium)
- Motor insurance (other than ‘E’ below)
| Insurance Type | Vehicle Type | Distribution Entities | Agents and Associates | Garages |
| Third Party (TP) | New | Nil | 2.5% | NA |
| Own Damage / Personal Accident / Legal Liability | 5% | 10% | ||
| TP | Old | 2.5% | 5% | 2.5% |
| OD / PA / LL | 10% | 15% | 10% |
- Health insurance
| Insurance Type | Nature | Distribution Entities | Agents and Associates | Hospitals |
| Individual | First time | 15% | 20% | 5% |
| Renewal | 5% | 10% | NA | |
| Porting | 5% | 10% | ||
| Group: Employer / Employee | First time | 2.5% subject to a maximum limit of INR 100,00,000 | 5% subject to a maximum limit of INR 100,00,000 | 1% subject to maximum of INR 25,00,000 |
| Renewal | ||||
| Porting | ||||
| Group: Non-Employer / Employer | First time | 2.5% subject to a maximum limit of INR 100,00,000 | 5% subject to a maximum limit of INR 100,00,000 | 1% subject to maximum of INR 25,00,000 |
| Renewal | ||||
| Porting |
- Other LoB general insurance
| Product | Proposed | |
| IDE | Agents & Associates | |
| Marine-Cargo | 10% | 15% |
| Marine-Hull | 10% | 10% |
| Miscellaneous – Retail* | 15% | 17.5% |
| Miscellaneous – Corporate/Group** | 10% | 15% |
| Government Schemes | As notified in the scheme | |
*This includes PA, Travel, Homeowners, Shopkeepers insurance, Liability, Cyber etc.
** Includes Group PA, Liability, Cyber etc. other than Engineering risks
- Property and Engineering insurance
| Insurance type | Nature | Distribution entities | Agents and associates |
| Property insurance: Retail | First time | 15% | 20% |
| Renewal | 10% | 15% | |
| Property insurance^ (SI on PML basis) | SI below INR 500,00,00,000 | 7.5% | 10% |
| SI between INR 500,00,00,000 – INR 2,500 crore | 6.25% | 7% | |
| SI above INR 2,500 crore | 5.0% | 5.5% | |
| Engineering risks including projects^ – EAR, CAR etc. | SI below INR 500,00,00,000 | 7.5% | 10% |
| SI between INR 500,00,00,000 – INR 2,500 crore | 6.25% | 7% | |
| SI above INR 2,500 crore | 5.0% | 5.5% |
^The commission will be calculated on a slab-wise basis i.e. for a single risk exceeding INR 2,500 crore (Indian Rupees two thousand five hundred crore) SI
– the first INR 500 crore (Indian Rupees five hundred crore), next INR 500,00,00,000 (Indian Rupees five hundred crore) – INR 2,500 crore (Indian Rupees two thousand five hundred crore) and thereafter the amount of SI above INR 2,500 crore (Indian Rupees two thousand five hundred crore) will be paid commission at the respective levels.
- Insurance packaged with Loan or Credit
| Insurance Type | Lending cum Distribution Entities | |
| Motor TP | New or Old Vehicle | Nil |
| Motor OD / PA / LL | 5% | |
| Health: first time | 5% | |
| Health: renewal | 2.5% | |
| Property: single premium | 2.5% | |
| Property: multi-year premium | 5% | |
# Additional Commission limits for individual policies:
- Category – I: For business procured from towns and cities with population size below INR 10,00,000 (Indian Rupees ten lakh) (Other than category-II): 10% of the applicable commission limit on the first-year premium;
- Category – II: For business procured from small towns up to population size below 50,000 (fifty thousand) and all rural areas: 20% of the applicable commission limit on the first year
Life Insurance – maximum commission limits# (as percentage of premium)
- Standalone
| Insurance type | Premium Payment Term (“PPT”)^ | Distribution entities | Agents | ||
| First year | Renewal* | First year | Renewal* | ||
| Individual non-linked (par or non-par) and linked$ | Below 5 years@ | 5% | 2% | 6.25% | 5% |
| 5 years | 10% | 2% | 12.5% | 5% | |
| 6 to 8 years | 14% | 3% | 17.5% | 5% | |
| 9 years | 18% | 3% | 22.5% | 5% | |
| 10 years and above | 20% | 3% | 25% | 5% | |
* From the beginning of the 6th policy year, once every 3 (three) years the renewal commission will be increased by 0.5% of the premium for policies which are renewed after the 6th year and will be paid at each renewal beginning from 6th policy year i.e., 5.5% of renewal commission for 6th, 7th and 8th policy renewals and 6% for 9th, 10th and 11th policy renewals and so on subject to maximum renewal commission of 7%.
^Policy term cannot be less than 10 (ten) years or the PPT, whichever is higher.
$ For linked products, the overall commissions and expenses together will ensure that the reduction in yield from 5th year is complied with. The reduction in yield may be taken up at the time of reduction in yield.
@ For PPT less than 5 (five) years only non-par non-linked products are permitted.
| Insurance type | Distribution entities | Agents | ||
| First year | Renewal | First year | Renewal | |
| Individual Savings: single premium | 1% | NA | 2% | NA |
| Individual pure term: single premium | 7.5% | NA | 10% | NA |
| Individual pure term: multi-year premium | 25% | 7.5% | 30% | 10% |
| Group pure term: single premium | 1.5% subject to a maximum of ₹ 20 lakhs | 2% subject to a maximum of ₹ 30 lakhs | ||
| Group pure term: multi-year premium | 5% | 5% | 7.5% | 7.5% |
| Pension/deferred annuity/ Immediate annuity*: single premium | 0.5% | NA | 0.75% | NA |
| Pension/deferred annuity: multi- year premium | 5% | 5% | 6.5% | 5% |
| Group fund based (both voluntary and employer sponsored) | 0.5% of the contribution made during the year, subject to a maximum of INR 10,00,000 | 0.5% of the contribution made during the year, subject to a maximum of INR 15,00,000 | ||
*No commission for annuity purchase from NPS.
- Life Insurance packaged with Loan or Credit (by lending institution)
| Insurance Type | Distribution cum Lending Entities | |
| First Year | Renewal | |
| Individual Pure Term: single premium | 2% | NA |
| Individual Pure Term: multi-year premium | 2.5% | 1% |
| Group Pure Term: single premium | 2% | NA |
| Group Pure Term: multi-year premium | 2.5% | 1% |
# Additional Commission limits for individual policies:
- Category – I: For business procured from towns and cities with population size below 10,00,000 (ten lakh) (Other than category-II): 10% of the applicable commission limit on the first-year premium;
- Category – II: For business procured from small towns up to population size below 50,000 (fifty thousand) and all rural areas: 20% of the applicable commission limit on the first-year premium.
This Prism has been prepared by:
|
Sidharrth Shankar |
Shivangi Sharma Talwar |
Amogh Sharma |
Pallov Upadhyay |
For more details, please contact km@jsalaw.com.
