India's insurance distribution model is on the cusp of its most significant structural change since the liberalization of the sector in 2000. IRDAI's proposed overhaul of the commission structure, released for stakeholder comments in early 2026, aims to align agent incentives with policyholder outcomes, particularly persistency — the measure of how many policyholders continue their policies beyond the first year.
Current Commission Ranges: 15-40% of First Year Premium
Under the existing framework, agents earn commissions as a percentage of the first year premium (FYP). The ranges vary significantly by product type. Unit-Linked Insurance Plans (ULIPs) typically offer 15-20% FYP commission in the first year, with lower renewal commissions of 2-5%. Traditional endowment and money-back plans offer higher commissions of 25-40% FYP, reflecting their higher margins. Term insurance plans offer 20-30% FYP commission. Health insurance commissions range from 15-25% FYP. Motor insurance commissions are among the lowest at 10-15% FYP. These high upfront commissions have long been criticized for creating misaligned incentives, where agents are motivated to sell products that maximize their commission rather than those best suited to the customer's needs.
What IRDAI Proposed: Caps, Grading, and Transparency
The proposed overhaul introduces three structural changes. First, commission caps on high-premium products. For traditional plans with premiums above Rs 1 lakh annually, the FYP commission would be capped at 20%, down from the current 25-40%. For ULIPs, the cap remains at 15% but with stricter disclosure requirements. Second, graded commission tied to persistency. Agents would earn a base commission of 10-15% FYP in the first year, with the remainder paid as a bonus linked to the persistency ratio of their book. If 85% or more of an agent's policies persist beyond the first year, they earn the full commission. If persistency drops below 70%, the commission is reduced by 25%. This is a fundamental shift from a sales-volume model to an outcomes-based model. Third, mandatory disclosure of commission to customers. Every policyholder must receive a document showing the exact commission earned by the agent on their policy, including any bonuses or incentives. This is expected to increase transparency and reduce the perception of agents as commission-driven rather than client-driven.
Impact on Different Product Types
The overhaul affects different product categories unevenly. Term insurance agents will see minimal impact as commission rates are already moderate and persistency is typically high. Health insurance agents face moderate changes, with the commission structure becoming more tied to claim experience and customer retention. ULIP agents face the most significant changes, with the persistency-linked component creating strong incentives to sell to genuinely interested buyers rather than chasing volume. Motor insurance agents will see little change as commissions are already low and regulated by the Motor Tariff.
Timeline and Implementation
IRDAI invited stakeholder comments on the draft guidelines by September 2026. Final guidelines are expected in Q4 2026, with implementation from April 2027. The transition period will allow agents and insurers six months to adjust systems and training. During the transition, both the old and new commission structures will apply, with the new structure taking precedence for policies issued after April 1, 2027.
What Agents Should Do Now
Prepare by focusing on persistency — review your book of business and identify policies at risk of lapsing. Proactive renewal reminders and annual reviews with clients will become directly linked to your income. Diversify your product portfolio beyond high-commission traditional plans to include term insurance and health insurance, where the persistency-linked component is less punitive. Build expertise in financial planning rather than product pushing — the new structure rewards advisors who match products to client needs. Train on the digital tools your insurer will provide for commission disclosure and persistency tracking. Most importantly, have honest conversations with your clients about the value you provide as an advisor, because the mandatory commission disclosure will make your earnings visible.