Competition Concerns In Irdai’s Consultation Paper On Recalibrating Insurance Distribution

G.R. Bhatia¹ and Vatsala Pandey²

1. Background

In September 2026, the Insurance Regulatory and Development Authority of India (IRDAI) released a Consultation Paper titled ‘Recalibrating Economics of Insurance Distribution’ for public comments. Part 1 states India’s experience, especially in the last decade, and the proposals in relation to the Distribution Reforms and Part 2 thereof gives the data in support of the proposals.³

The paper follows the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025. The Act aims to grow the insurance sector faster, protect policyholders better, make business easier for Insurers and intermediaries, and make regulation more transparent.

IRDAI finds that premiums have grown only in line with GDP, that a few large Insurers dominate the market, and that costs are high. Insurance coverage has stayed broadly flat. Large parts of the ‘missing middle’, such as informal workers and small businesses remain under-insured. Sellers focus on easy-to-reach urban and salaried customers, and just 10 States account for 80% to 82% of retail health policies.⁴ The Reserve Bank of India’s Financial Stability Report (December 2025) and the Ministry of Finance’s Economic Survey 2025-26 both call for lower distribution costs and more digital selling.⁵

IRDAI also aims to strengthen competition. This is in line with the Competition Act, 2002, which seeks to promote and sustain competition, protect consumers and ensure that businesses trade freely. It is also in sync with the Draft National Competition Policy, 2011, which calls for a level playing field and recommends that the Government should not restrict markets more than it needs to.⁶

2. Distribution Channels Today

Insurers sell through verticals and pay them commission towards their services. Customers usually do not know how much. Today there are 8 types of distributing firms and 9 types of individual sellers, each with different rules. The main channels are:

(a)      Agents - Individuals who sell for Insurers. In law, an ‘insurance agent’ is a person who is paid commission for bringing in insurance business. Insurers appoint their Agents, and an Agent cannot act for more than one life, one general, one health and one of each other single-line Insurer. Agents bring in about 30% of general insurance premium.⁷

(b)     Corporate Agents - These are banks, NBFCs and other firms that sell insurance alongside their main business. A bank can sell policies of up to 9 life, 9 general and 9 health Insurers, and does not need separate capital under insurance rules. In life insurance, banks and other bancassurance partners bring in about 45% of private Insurers’ premium.sup>8

(c)      Brokers - Firms that can sell products of all Insurers, with no product or area limits. They need capital of ₹75 lakh to ₹5 crore and are prohibited from selling non-insurance products. Brokers bring in about 33% of general insurance premium.sup>9

(d)     Others - Web aggregators mainly offer online comparison. OEM Brokers are set up by vehicle makers, and Motor Insurance Service Providers (MISPs) are motor Dealers. Point of Sale Persons (PoSPs) are individuals who sell a limited range of products for Brokers or Insurers.

The legal difference is that Brokers and Corporate Agents are ‘insurance intermediaries’ registered by IRDAI, while Agents are appointees of Insurers. IRDAI notes that a Broker owes a fiduciary duty to the customer, while a corporate Agent owes a duty to the Insurer.¹⁰

IRDAI proposes to replace these verticals with three types of distributor channels: i) Insurance Distribution Entities (IDEs) will cover firms including today’s Corporate Agents, Brokers and Web Aggregators. An IDE may sell for many Insurers (open architecture) or for one (closed architecture). In the premises, the IDEs are not necessarily subject to an exclusivity obligation; ii) Insurance Distribution Persons (IDPs) are individuals and sole proprietors, such as Agents of Insurers and PoSPs of IDEs. IDPs of Insurers can sell for only one Insurer in each category. Resultantly, they will promote the business of their appointing Insurer; iii) Market Infrastructure Institutions (MIIs) are not-for-profit companies set up by Insurers themselves, such as Bima Sugam India Federation. Any MII must be formed by at least 11 insurers, each holding less than 10% once it is fully operational.

3. Aim of Fostering Competition

IRDAI states that encouraging competition is one of the core aims of the proposed reforms. It calls the new structure a ‘foundational reform’ to open up distribution to more players, and asks the public how the reforms could encourage more competition. It proposes several measures that support competition in both upstream and downstream markets of the insurance sector in India:¹¹

(a)      Easier entry - Today’s entry and capital rules are complex and differ by type of distributor. IRDAI proposes to cut entry capital to ₹10 lakh, make registration permanent and lower the fees.¹² Distributors may also sell non-insurance products, which Brokers cannot do today.

(b)     Same rules for the same work - IRDAI finds that different rules for similar work give some players an unfair edge, and adopts the principle of ‘same activity, same regulation’.¹³

(c)      Transparency and choice - Customers cannot easily compare products, which weakens price competition. IRDAI proposes to ban dark patterns and to make comparing and switching easy.

(d)     Curbing captive sales - Banks, NBFCs and motor Dealers earn high commissions where customers have little choice. IRDAI proposes to ban forced bundling of insurance with loans, and stop Dealers refusing cashless repair to customers who bought insurance from elsewhere.

(e)      Neutral platforms - IRDAI proposes MIIs as neutral platforms, and a Public Insurance Registry (PIR) with a level playing field for Insurers and intermediaries.

It is said that the proposed measures, namely easier entry and allowing distributors to sell non-insurance products, will open up the market. The rule of ‘same activity, same regulation’ will treat distributors fairly. Letting customers compare price and claim ratio will help them choose well. Banning dark patterns, curbing captive sales and keeping platforms neutral, if kept truly neutral, will protect customers. Together, these measures should make the insurance industry in India more competitive.

However, some of the proposed reforms do not seem to be in sync with the intended objectives or with the principle of ‘competition on merits’. For example, a distributor in open architecture, such as a Broker, can sell policies of many competing Insurers, as it is not subject to exclusivity obligations. Such a Broker can instantly provide a comparative analysis of premium rates and claim ratios to a potential customer, enabling him to take a well-informed decision. A distributor in closed architecture, such as an Insurer’s own Agent, can sell for only one Insurer in each category. Although both sell the same policies to customers, the paper proposes to treat them differently and in a discriminatory manner.

4. Gaps between the Aim and the Proposals

(a)      Lower pay for sellers who offer many Insurers - It is proposed that Brokers and Web Aggregators, which follow open architecture, will get lower commission caps than an Insurer’s own Agents for almost every product. On retail health insurance, for example, a Broker may earn up to 15% in the first year and 5% on renewal, while an Agent may earn up to 20% in the first year and 10% on renewal.¹⁴ IRDAI is concerned that open-architecture distributors may push customers to switch to another Insurer that pays them better compensation.

At this juncture, it is worthwhile to consider competition in upstream as well as in the downstream markets. Brokers operate in the vertical market, and since they represent more than one Insurer, they can instantly provide comparative pricing and claim ratios of each insurer, enabling the customer to take an informed decision. By contrast, an Agent represents only one Insurer as they are bound by an exclusivity obligation, so he cannot provide comparative figures of Insurers to enable the customer to choose the best. Moreover, he can’t assist the customer against the Insurer in the event of a claim dispute, which a Broker can. Additionally, the Broker can provide interoperability/migration at the stage of renewal, a flexibility that an Agent does not have.

On the other hand, in the upstream Insurer market, an Insurer knows that its Agent cannot migrate the business to another Insurer. This removes competitive pressure on the Insurer and may lead to complacency and inefficiency in its business. This also results in denial of market access to those who want to compete on merits. Distributors such as Brokers are expected to provide better services to the customers, e.g. a Broker, since he can compare the products of several Insurers and advise the customer on the option that best suits his needs.

Another interesting aspect is that currently, as per IRDAI’s own data, Agents bring in 30% and Brokers bring in 33% of general insurance premium. This clearly shows that both verticals are fiercely competing and differential compensation will create an uneven playing field which will chill the competition.

(b)     Pay based on legal form - The proposed compensation caps depend on the type of distributor, which turns on its legal form, not on the service it provides. A motor Dealer, if it is a company, must register as an IDE, and it may earn up to 5% on own-damage cover for a new vehicle. A Dealer that is a sole proprietorship may instead become a PoSP of an IDE, or an associate of one Insurer. As an associate, it may earn up to 10% on the same cover.¹⁵ So the same work earns double the commission, only because of how the Dealership is set up.

In the wake of this proposed policy, Dealers will tend to tie up with one Insurer. This will reduce customer choice at the point of sale. It also goes against IRDAI’s own principle of ‘same activity, same regulation’.

(c)      Low pay for renewals and switching - When a health policy is renewed, a Broker may earn up to 5% and an Agent up to 10%.  

          Interestingly, the service of renewal is the same or similar, yet the Broker will be disincentivized without justification. It will have a ripple anti-competitive effect on both upstream and downstream markets. A Broker works in open architecture, so it can port a customer to any Insurer that offers better terms. An Agent cannot. Under the Insurance Act, an Agent can act for only one Insurer in each category.¹⁶ So it can port a customer only into its own Insurer. It needs to be appreciated that lowering switching barriers increases market rivalry, forcing companies (in this case Insurers and their Agents) to offer lower prices, better services and higher quality. When switching costs are high, customers stay with their existing Insurer. Insurers then face little competitive pressure on price and service. IRDAI itself says customers must be able to switch providers easily, and that barriers to switching weaken customer choice.

(d)      Preferred treatment for insurer-promoted platforms - IRDAI proposes that MIIs may get ‘preferred distribution status’, with fees much lower than current commission rates.¹⁷ It expects insurers to offer products at lower rates on MIIs, while IDEs may not insist on the same price across channels.¹⁸ Motor dealers must display the MII option with a QR code and tell new-vehicle buyers about it, and IRDAI asks whether the MII option should be compulsorily offered to them.¹⁹

MIIs would therefore compete with Brokers and Web Aggregators for the same customers, but on better terms set by regulation, not merit. IRDAI says MIIs should provide a level playing field for all stakeholders. Yet the level playing field it describes for MIIs covers only insurers and consumers, not other distributors.²⁰

Further, competing insurers would jointly run the platform and decide matters such as fees and rankings, which risks coordination among them. Rival insurers could share sensitive information on pricing, commission or customers. They could also agree, openly or tacitly, to offer lower prices only on their own platform, steering customers away from independent distributors. Such conduct would weaken competition among insurers, and between the platform and other distributors.

5. From Common Concerns to Differential Treatment of Distributors

The Consultation Paper also points to a sharp rise in distributor commission. In general insurance, between FY23 and FY25, premium through Brokers grew by 37%, but Broker commission grew by 173%, nearly five times as fast. In retail health insurance, commission tripled, from about 10% to 30%. IRDAI also says open architecture has given corporate intermediaries more power to demand higher pay in health insurance, with pay-outs in some corporate and group deals reaching 93%.

Whatever view one takes of these figures, they do not justify treating brokers differently from agents. The highest figure, 93%, comes from corporate and group deals, not from retail sales. IRDAI itself frames the question as ‘whether distributor remuneration [should] reflect the effort involved in advising and servicing customers, or the intermediary’s ability to negotiate higher pay-outs from Insurers arising from control over customer access’.²¹ The question itself suggests that commission should reflect the service provided to the customer, not the type of distributor.

International practice shows that distributors performing the same function should be treated alike. In the UK, the Competition and Markets Authority found that comparison platforms improve competition, lower prices and help smaller suppliers enter the market.²² In India, Web Aggregators and Brokers that sell for many Insurers play a similar role. Yet the proposal gives them lower caps, which is likely to weaken this channel.

Australia offers another example. Even where its regulator chose to limit commission on life risk insurance, it applied the same rules to all advisers. IRDAI, by contrast, proposes different treatment for Brokers and agents selling the same products.²³

Before IRDAI finalises the proposals, it can test these concerns from a competition perspective. The Competition Act, 2002 also provides a ready mechanism under which a sectoral regulator may seek the opinion of the CCI, and the CCI may in turn seek the opinion of the sectoral regulator. For ease of reference, these provisions are reproduced below:

‘21. Reference by statutory authority.—(1) Where in the course of a proceeding before any statutory authority an issue is raised by any party that any decision which such statutory authority has taken or proposes to take, is or would be, contrary to any of the provisions of this Act, then such statutory authority may make a reference in respect of such issue to the Commission:

Provided that any statutory authority, may, suo motu, make a reference to the Commission on any issue that involves any provision of this Act or is related to promoting the objectives of this Act, as the case may be.

(2) On receipt of a reference under sub-section (1), the Commission shall give its opinion, within sixty days of receipt of such reference, to such statutory authority which shall consider the opinion of the Commission and thereafter, give its findings recording reasons therefor on the issues referred to in the said opinion.

21A. Reference by Commission.—(1) Where in the course of a proceeding before the Commission an issue is raised by any party that any decision which, the Commission has taken during such proceeding or proposes to take, is or would be contrary to any provision of an Act whose implementation is entrusted to a statutory authority, then the Commission may make a reference in respect of such issue to the statutory authority:

Provided that the Commission, may, suo motu, make a reference to a statutory authority on any issue that involves provisions of an Act whose implementation is entrusted to that statutory authority.

(2) On receipt of a reference under sub-section (1), the statutory authority shall give its opinion, within sixty days of receipt of such reference, to the Commission which shall consider the opinion of the statutory authority, and thereafter give its findings recording reasons therefor on the issues referred to in the said opinion.’²⁴

The opinion is time-bound and must be given within 60 days. It is not binding, but the authority receiving it must consider it and record reasons for its findings. This makes the mechanism quick and practical. IRDAI can use it, even suo motu, to test its proposals against the objectives of the Competition Act before notifying the final regulations.

Conclusion

A sectoral regulator exists to secure the best outcomes for the sector as a whole, namely policyholders, intermediaries and insurers, including potential new entrants. It ought not to identify with the incumbents it regulates. The regulator’s mandate is to ensure the healthy growth of the market, not the comfort of firms already in it. Maintaining and promoting competition in both upstream and downstream markets is the sector’s best guarantee of efficiency, and of a win-win outcome for all stakeholders.²⁵

IRDAI’s concern about rising distribution costs is understandable, but its proposed solution risks harming the competition it seeks to promote. The better approach is to link commission to the extent of services rendered to the customer. On that basis, distributors performing the same activity need not be regulated in the proposed manner, as differential treatment will distort competition on merits. This matters beyond the distribution market. The Government of India’s target is ‘Insurance for All by 2047’, the centenary year of India’s independence. This mission is a bedrock of Viksit Bharat, as it seeks to shield every citizen and enterprise from financial ruin due to health, life or property emergencies. Achieving it will require a competitive insurance sector, in which distributors compete on service, not on regulatory advantage. For this, we need a simple formula: ‘Same activity. Same treatment. For every distributor and every platform’.

Footnotes

^{1 G.R. Bhatia is a Senior Partner and Head of the Competition and Regulatory Laws Practice at Corporate Professionals Advisors & Advocates, New Delhi. He is a former Additional Director General of the Competition Commission of India and of the erstwhile MRTP Commission, Government of India, and was a Member of the National Competition Policy Committee constituted by the Government of India. He has been recognised as a Mondaq Thought Leader in Antitrust Laws for 2023 and 2025.}

^{2 Vatsala Pandey is a Senior Associate in the Competition and Regulatory Laws Practice Team and holds a Master’s in Corporate Law from the University of Cambridge, UK.}

^{3 IRDAI, Consultation Paper on Recalibrating Economics of Insurance Distribution – Part 1: Distribution Reforms and Part 2: Distribution Costs & Commission Structure (September 2026) (“Consultation Paper”).}

^{4 Consultation Paper, Part 1, para 36, p. 19.}

^{5 Consultation Paper, Part 1, paras 27–33, pp. 16–17, referring to Reserve Bank of India, Financial Stability Report (December 2025) and Ministry of Finance, Economic Survey 2025-26.}

^{6 Preamble, Competition Act, 2002; Ministry of Corporate Affairs, Draft National Competition Policy, 2011.}

^{7 Sections 2(10) and 42(1)–(2), Insurance Act, 1938; Consultation Paper, Part 1, para 68, p. 25.}

^{8 Consultation Paper, Part 1, para 86(a)–(b), p. 32; Part 2, para 5.1, p. 9.}

^{9 Consultation Paper, Part 1, para 86(a), (b), (d) and (e), p. 32; para 68, p. 25.}

^{10 Sections 2(10B) and 42D, Insurance Act, 1938, as amended by the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025; Consultation Paper, Part 1, para 86(c), p. 32.}

^{11 Consultation Paper, Part 1, para 8, p. 5; para 10, p. 6; para 82, p. 28; para 160 (Question 5), p. 73.}

^{12 Consultation Paper, Part 1, para 92(2)–(4), pp. 36–37.}

^{13 Consultation Paper, Part 1, para 66, p. 25.}

^{14 Consultation Paper, Part 1, Box 4A(B), p. 49.}

^{15 Consultation Paper, Part 1, Box 4A(A), p. 49; para 142(2)–(3), p. 67.}

^{16 Consultation Paper, Part 1, para 102 and Box 4A(B), pp. 48–49; Section 42(2), Insurance Act, 1938.}

^{17 Consultation Paper, Part 1, para 147, p. 68}

^{18 Consultation Paper, Part 1, preface to Question 27, p. 75; para 92(9)(A), p. 39}

^{19 Consultation Paper, Part 1, para 142(5)(a)–(b), p. 67; Question 27, p. 75}

^{20  Consultation Paper, Part 1, para 84(6), p. 30; para 92(1)(C), p. 36.}

^{21 Consultation Paper, Part 1, para 51, p. 21; para 62, p. 24; para 63, p. 25.}

^{22 Competition and Markets Authority (UK), Digital Comparison Tools Market Study: Final Report (26 September 2017), para 2 and Table 4.1.}

^{23 ASIC Corporations (Life Insurance Commissions) Instrument 2017/510 (Australia), section 5; Consultation Paper, Part 1, para 102 (Principles 1–2), p. 47 and Boxes 4A–4B, pp. 49–52.}

^{24 Sections 21 and 21A, Competition Act, 2002, as amended by the Competition (Amendment) Act, 2023.}

^{25 On regulatory capture, see G.J. Stigler, “The Theory of Economic Regulation”, Bell Journal of Economics and Management Science, Vol. 2(1), 1971, pp. 3–21; E. Dal Bó, “Regulatory Capture: A Review”, Oxford Review of Economic Policy, Vol. 22(2), 2006, pp. 203–225}.

The views expressed in this article are solely those of the author in her personal capacity and are based on her understanding of the applicable legal and regulatory framework. They do not necessarily represent the views, policies or practices of organisation with which the authors is associated.