Insurance Regulatory and Development Authority of India proposes commission caps to curb mis-selling and benefit policyholders

Key facts

• The Insurance Regulatory and Development Authority of India (Irdai) has introduced statutory caps on commissions and expenses of management to end commission-driven bidding wars and excessive upfront distributor payouts, passing cost efficiencies to policyholders through lower premiums and improved investment returns.
• The proposals aim to shift insurance distribution from an acquisition-and-commission model towards cost control, persistency, transparency and customer protection.
• The measures include product-level commission caps, effort-based remuneration, restrictions on bundling insurance with loans, and changes to the timing of life insurance commissions.
• The measures are proposals, not final regulations, with the consultation process open until October 25, 2026.
• Irdai has proposed reinstating product-level commission caps removed in 2023, including a 20% first-year commission cap for life insurance policies with premium-paying terms of 10 years or more, and health insurance commission caps of 15% in the first year and 5% on renewals.
• PB Fintech, parent of Policybazaar, fell 36% on September 24 following the proposals, while Turtlemint fell 20%, and shares of several banks also declined.
• Under effort-based commissions, remuneration would be linked to product complexity, selling and servicing effort, and the distribution channel.
• Individual agents face lower impact than brokers and banks, with relatively higher commission ceilings for some products and additional incentives for business from rural and underserved areas.
• Irdai has proposed eliminating commission on third-party motor insurance, whose premiums are regulated.
• In health insurance, reduced sales incentives could lead to adverse selection if healthier customers become less inclined to buy policies.
• Irdai's proposals address mis-selling linked to high commissions, particularly in bancassurance, by capping commissions, restructuring life insurance payouts and restricting bundling of insurance with loans.