IRDAI is considering a phased reduction of upfront commissions paid to insurance intermediaries, with the goal of linking agent compensation to long-term policy retention rather than initial sales volume. The move targets mis-selling driven by high upfront commissions, particularly in traditional life insurance products where agents earn 25-40% first-year commissions.
Under the proposed framework, commissions would be front-loaded at lower rates with bonus structures tied to persistency ratios at 5, 10, and 15 years. The reform follows global best practices where markets like the UK (RDR) and Australia (FASEA) have already shifted to fee-based or trail-based commission models.
Industry body Life Insurance Council has flagged concerns about agent attrition during the transition, noting that 12 lakh agents left the industry in FY26. IRDAI is expected to issue a draft circular by September 2026 with implementation from April 2027.