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IRDAI Proposes Hard Commission Caps and Lower Insurer Expenses
India’s insurance regulator wants to limit how much money insurance sellers can receive.
It says some commissions became very high after commission caps were removed in 2023.
The regulator believes high commissions can make insurance more expensive for customers.
It also says large payouts may encourage policies to be sold even when they are not the best fit.
The proposal would set different limits for agents, brokers, banks, hospitals and other distributors.
Long-term life policies could have higher first-year commissions than shorter policies.
Health insurance commissions would also have specific limits.
The regulator wants insurers to reduce their overall operating expenses over several years.
People and organizations can comment on the proposal until October 25, 2026.
IRDAI has proposed reintroducing hard commission caps based on insurance segment, product, channel and selling effort.
For life policies lasting 10 years or more, first-year commissions would be capped at 25% for agents and 20% for other distributors.
Individual health-policy commissions would be capped at 20% for agents and associates, 15% for distribution entities and 5% for hospitals.
The regulator said commissions rose sharply after caps were removed in 2023, with some life and general insurance products recording maximum payouts of 81% and 93%.
IRDAI also proposed reducing Expense of Management limits for life insurers to 12.5% within five years and for general insurers to 20% of domestic GDPI within five years.
- Who
- The Insurance Regulatory and Development Authority of India (IRDAI), insurers and insurance distributors are involved.
- What
- IRDAI proposed hard commission caps and lower Expense of Management limits across life, health and general insurance.
- Where
- India.
- When
- The consultation paper was reported as released on Tuesday in one article and Wednesday in the other; comments are invited until October 25, 2026.
- Why
- IRDAI said commission payouts and distribution costs have risen sharply, increasing insurance costs and potentially worsening customer outcomes.
Key facts
- Consultation paper
- “Recalibrating Economics of Insurance Distribution”
- Life policy cap
- For policies of 10 years or more, first-year commissions are proposed at 25% for agents and 20% for other distribution entities.
- Health policy cap
- First-year commissions are proposed at 20% for agents and associates, 15% for distribution entities and 5% for hospitals.
- Life commission range
- Average first-year commissions across individual life products ranged from 14% to 51%; maximum commissions reached 81% in some categories.
- General insurance range
- Maximum commissions reached 93% in some general insurance categories.
- Life Expense of Management limit
- The proposed company-level limit would move to 15% within two years and 12.5% within five years.
- General insurance Expense of Management limit
- The proposed limit would fall to 20% of domestic Gross Direct Premium Income within five years.
- Comment deadline
- October 25, 2026
Quotes
Insurance Regulatory and Development Authority of India (Irdai)
India’s insurance regulator proposing reforms to commissions and insurer expense limits
“The inability to exercise adequate cost discipline under the flexible EoM regime makes a compelling case for hard caps on commissions within revised EoM limits, stringent implementation, and enhanced regulatory oversight.”
financialexpress.com
“The 2023 and 2024 framework relies heavily on Board approved commission policy”
financialexpress.com
Sources
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