Introduction
On 23 September 2026, the IRDAI proposed major changes for the insurance distribution landscape through its Consultation Paper on “Recalibrating Economics of Insurance Distribution” (“Paper”). The Paper is set out in two parts, where Part 1 titled “Distribution Reforms” proposes changes to address the structural issues identified by IRDAI, and Part 2 titled “Distribution Costs and Commission Structures” builds on the issues identified in Part 1 by undertaking a detailed examination of the distribution costs and commission structure across the industry.
The Paper proposes, among other matters, revisions to the Expenses of Management (“EoM”) framework, simplification of the insurance distribution architecture, re-introduction of prescribed commission caps, greater transparency in pricing and distribution, safeguards against compulsory bundling and mis-selling, and reforms to motor insurance distribution. The Paper also proposes the development of digital infrastructure through the proposed Public Insurance Registry (“PIR”) and Market Infrastructure Institutions (“MIIs”). The Paper sets out the objectives and principles underlying these proposals, which provide the context for the changes proposed across the distribution framework. This article provides an overview of the key changes proposed by the Paper.
Proposed changes in Distribution Architecture
Under the present framework, there are 8 types of insurance distribution licences at the entity level and 9 types of individual licences permitted for undertaking insurance solicitation and servicing activities. The Paper proposes to replace this multiple-category licensing framework with a simplified architecture comprising common frameworks for entities and individuals engaged in insurance distribution, based on the nature of the entity or individual. These are:
- Insurance Distribution Entities (“IDEs”): The Paper proposes a common framework for entities engaged in insurance distribution, consolidating the existing categories of insurance intermediaries, including insurance brokers, corporate agents, IMFs, web aggregators etc. Key changes proposed include common capital and registration requirements, the option to adopt an open architecture, removal of limits on insurance risk cover, and permitting IDEs to distribute non-insurance financial products and non-financial products or services, subject to the applicable regulatory requirements.
- Insurance Distribution Persons (“IDPs”): The Paper proposes a common framework for persons involved in insurance distribution, consolidating the existing categories into four proposed categories, namely, Insurance Agents, Insurance Associates, Specified Persons and PoSPs. Key changes proposed include revised qualification and training requirements, with a minimum Class 12 qualification and 100 hours of training proposed for each insurance segment, a common framework for the onboarding and identification of IDPs, and operating under closed architecture only.
- Market Infrastructure Institutions (“MIIs”): The Paper proposes MIIs as a new category of not-for-profit digital insurance infrastructure, promoted by a group of Insurers. MIIs would facilitate digital, pull-based insurance distribution, with Bima Sugam India Federation identified as an example of an MII.
Proposed changes in the EoM Framework
The Paper proposes to revise the existing EoM framework by reducing the permissible EoM limits through a phased glide path.
- For Life Insurers, the proposed limits are 15% of premium within two years and 12.5% within five years, and
- For General Insurers, the proposed limits are 25% within two years and 20% within five years.
The basis for calculating EoM would also change from Gross Written Premium (“GWP”) to Gross Direct Premium Income (“GDPI”), with gross commissions continuing to form part of the EoM calculation. The Paper also proposes specific changes to the treatment of reinsurance commission and premium under government-promoted schemes for EoM purposes.
The Paper further proposes mandatory cost audits and enhanced disclosure requirements. Cost audits would be required for all expenses of Insurers, including payouts and non-monetary incentives to intermediaries, while IDEs with insurance-related revenue above ₹100 crore would also be subject to cost audit. IDEs with insurance-related revenue above ₹50 crore would be required to publicly disclose key accounting parameters, including revenue, expenses, related-party payments and profit after tax. The Paper also proposes reducing the regulatory fee payable by Insurers from 0.05% to 0.04% of premium, subject to a maximum of ₹20 crore.
Commission Caps and Changes to the Distribution Commission Framework
The Paper proposes to re-introduce prescribed commission caps and replace the current framework with an all-inclusive definition of commission covering direct and indirect, monetary and non-monetary payments made to distributors. The proposed commission limits would be differentiated based on the distribution architecture, insurance segment, line of business, product complexity and effort involved in selling and servicing the product. The Paper proposes relatively lower commission limits for open-architecture distributors and mandatory or near-mandatory products (such as for insurance products packaged with credit or loans), while relatively higher limits would apply to closed-architecture distributors and products requiring greater selling effort. The Paper also proposes that commissions payable to PoSPs engaged by IDEs would be borne out of the commission payable to the IDE, rather than being paid over and above the IDE’s commission.
Restrictions on Compulsory Bundling and Measures Against Mis-selling
The Paper proposes additional measures to restrict compulsory bundling of insurance with credit, loans and other financial products or services. The proposals distinguish between permissible and impermissible bundled arrangements, with package offerings being permitted where the combination of products or services provides demonstrable gains to the customer. The Paper also proposes lower commission limits for insurance products distributed alongside credit and provides for arrangements under which a lending institution may take a group insurance policy covering its loan portfolio and bear the premium as its own expense.
The Paper further proposes measures to address mis-selling and sales incentives, including prohibiting volume or reward-linked incentives for employees of banks, NBFCs and other regulated entities involved in insurance distribution.
Direct Payment of Premiums and Claims
The Paper proposes to separate insurance distribution from the handling of customer monies by requiring premiums to flow directly from customers to Insurers. Premium payments would be permitted only through the customer’s UPI, credit/debit card or bank account, with third-party payments not being accepted. IDEs would also not be permitted to collect or handle customer monies in connection with the distribution of insurance products.
Similarly, the Paper proposes that claim payments be made directly to the verified bank account of the policyholder or nominee, rather than being routed through the distributor. These measures are proposed as part of the broader changes to the flow of funds within the insurance distribution framework.
Proposed Changes to Motor Insurance Distribution
The Paper proposes to restructure the distribution of motor insurance, including by reducing the existing multiple layer framework for distribution and promoting digital channels for the purchase of motor insurance. In particular, the Paper proposes lower commission limits for mandatory third-party motor insurance, recognising the limited distribution effort involved in such products. Motor dealers presently operating as MISPs and satisfying the legal structure of a distribution entity would be required to register as IDEs if they continue to distribute insurance.
Market Infrastructure Institutions and Bima Sugam
The Paper proposes a framework for Market Infrastructure Institutions (“MIIs”) as fully digital, pull-based alternatives for insurance distribution. MIIs would be not-for-profit companies promoted by a group of Insurers. Bima Sugam India Federation is identified as an existing MII, which is a customer-facing platform for the digital purchase of insurance products. The Paper further proposes that additional MIIs may be established by groups of Insurers, providing digital marketplaces for the purchase of insurance products. The proposed MII framework would sit alongside the existing distribution channels, with customers being able to purchase insurance digitally through such MII platforms.
Conclusion
The proposed reforms cover several aspects of the insurance distribution framework, including the distribution architecture, EoM framework, commission structure, handling of customer monies, and digital infrastructure. For Insurers and other participants in the distribution chain, the proposed framework would involve changes across distribution arrangements, commission and expense structures, and related operational and compliance requirements. If introduced in its present form, the proposals would require corresponding changes to existing distribution arrangements, processes and systems to align with the revised framework.
The IRDAI has invited comments and suggestions from the public and all stakeholders on the proposed measures, with submissions to be made by 25 October 2026.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
