IRDAI on September 23, 2026 released a two-part public consultation paper titled Recalibrating Economics of Insurance Distribution, the most significant proposed overhaul of distribution rules since the 2023 Expenses of Management framework. It proposes a five-year EoM glidepath, hard commission caps linked to product complexity, a ban on compulsory bundling of insurance with loans, clawbacks for mis-selling, and a restructure of intermediaries into three categories. Comments are open until October 25, 2026.
Why the paper exists: payouts outran the business
IRDAI’s own data in the draft shows why the 2023 framework failed to cut costs. Private life insurers’ total expenses rose to 20.2 percent of gross premium in FY26 from 16.5 percent in FY21; general insurers rose to 32.1 percent from about 25 percent in FY19. Between FY23 and FY25, a sampled group of corporate agents grew new business premium 28 percent (Rs 63,000 crore to Rs 80,000 crore) while total distributor remuneration grew 125 percent (Rs 9,580 crore to Rs 21,600 crore). General insurance broker commissions jumped 173 percent (Rs 6,348 crore to Rs 17,348 crore) against 37 percent premium growth. Distributor payouts now account for about 27 percent of first-year life premiums, with rewards and incentives adding a further 30 to 60 percent on top of base commission.
What is proposed
- EoM glidepath: life insurers move to a company-level cap of 15 percent of GDPI in two years and 12.5 percent in five; general insurers move from 30 percent of GWP to 25 percent of GDPI in two years and 20 percent in five. Calculations standardise on GDPI; reinsurance commission netting-off is disallowed; annual cost audits are mandated for insurers and large intermediaries.
- Hard commission caps return: limits are set by segment, line of business, channel, product complexity and servicing effort, with all payments to distributors (rewards, promotional spend, related-party payments) counted inside the cap to prevent circumvention. Reported product-level illustrations include credit life at 2 percent versus about 28 percent today, motor own damage at 5 percent versus 16 percent, health at 5 percent versus 40 percent in high-payout examples, and near-zero caps on loan-packaged motor third party.
- Mis-selling and bundling: compulsory bundling of insurance with loans and credit is banned except for defined acceptable packages with disclosed commission, separate payment and no forced insurer choice. Volume-linked and reward-linked incentives for bank and NBFC staff selling insurance are prohibited. Mis-selling can trigger commission clawbacks. Suitability becomes an enforceable obligation with documented needs and an audit trail for specified life sales.
- Transparency: commission disclosure is required on policies with sum insured above Rs 50 crore; large insurers and distribution entities must disclose revenues, expenses and related-party payments. Digital dark patterns are targeted: buyers should see price and product features without first surrendering phone numbers or personal data.
- Architecture: eight intermediary categories collapse into three: Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions. Entry capital is proposed at Rs 10 lakh with permanent registration, and intermediaries may distribute non-insurance financial and non-financial products. Bima Sugam and the Public Insurance Registry are positioned as the pull-based digital alternatives.
- Motor: average motor commission rates are cited at 24 percent; OEM brokers and Motor Insurance Service Providers took about Rs 7,050 crore in commissions on Rs 29,000 crore of premium in FY25 (about 30 percent of distribution). Cashless repair denial and OEM incentive-linked agreements are targeted.
What it means for each reader
Policyholders: if final rules cut acquisition cost, part of the saving can show up as lower premiums, better renewal terms or higher returns on savings products, but only if insurers do not simply rebuild the cost under another head. The loan-bundling ban and the end of phone-first pricing pages are the two consumer-facing changes most likely to stick even if commission numbers are watered down in consultation.
Agents, brokers and bank staff: the paper counts every payment, not just base commission, so side arrangements shrink. Low-premium, high-effort products (two-wheeler own damage, micro health, credit life) become harder to sell on commission alone; distributors will push toward fewer, larger tickets unless the final framework protects service economics.
Insurers and banks: bancassurance economics are directly hit: multi-tie-up bank arrangements already average about 33 percent total payout (up to 72 percent in some cases) versus 13 percent for single tie-ups, and group credit life payouts reached about 45 percent of premium in FY25. Expect severe industry feedback during the comment window.
What to watch
Watch three things before treating this as law: (1) the final commission numbers after the October 25 comment deadline, (2) whether the EoM glidepath keeps the GDPI base or reverts to GWP, and (3) whether Bima Sugam’s September go-live and the Public Insurance Registry timetable stay on track as the structural alternatives to high-cost push distribution. Our earlier coverage tracked the pre-paper signals on bank commission cuts and the corporate-agent overhaul; this paper is the actual text those stories anticipated.