3 hrs ago
New IRDAI commission caps threaten low-value insurance distribution
India’s insurance regulator is considering new limits on how much distributors can earn from selling insurance.
For example, a policy costing ₹800 could provide only ₹40 to a distribution company.
InsuranceDekho said this may make it harder to pay and support the people who sell such policies.
This could be important because many two-wheelers are already uninsured.
The proposal would give distribution entities no commission on new-vehicle third-party insurance.
Agents and associates would have a small commission limit for those policies.
Some experts believe the changes could make insurance buying more direct and transparent.
However, online insurance companies and finance firms that depend on commissions could lose income.
They may need to earn money from renewals, payments, policy management and claims support instead.
IRDAI has proposed tighter commission caps under its consultation paper on recalibrating insurance distribution economics.
A ₹800 two-wheeler own-damage policy would generate only ₹40 for a distribution entity under the proposed 5% cap.
InsuranceDekho’s Indraneel Chatterjee warned that lower commissions could weaken distribution networks and insurance penetration.
The proposal sets zero commission for IDEs on new-vehicle third-party insurance, while agents or associates would face a 2.5% cap.
Analysts said insurtechs and NBFCs may face pressure, although new opportunities could emerge in servicing, renewals, payments and claims support.
- Who
- The Insurance Regulatory and Development Authority of India, insurance distributors, agents, insurtechs and NBFCs are involved; comments were provided by Indraneel Chatterjee, Hanut Mehta and Deepak Shenoy.
- What
- IRDAI has proposed tighter insurance commission caps, limits on payout structures and a reduced role for large distribution intermediaries.
- Where
- India’s insurance distribution market.
- When
- The proposals were discussed in the consultation process; the article cites potential NBFC effects from FY28 onward.
- Why
- The proposals aim to regulate commissions and distribution expenses more closely, while industry participants warn that lower payouts could make low-value policies harder to distribute.
Industry Concerns
Regulatory And Consumer Benefits
Viability of low-value distribution
Industry Concerns
InsuranceDekho said a 5% commission on an ₹800 policy would provide only ₹40 before accounting for the economics of the point-of-sales person, potentially weakening distribution networks.
Regulatory And Consumer Benefits
Supporters of the proposals argue that lower commissions and closer expense controls could make distribution more efficient and reduce dependence on large intermediaries.
Insurance penetration
Industry Concerns
Indraneel Chatterjee warned that sharply lower commissions, particularly on third-party insurance, could reduce incentives to distribute policies when many two-wheelers are already uninsured.
Regulatory And Consumer Benefits
Hanut Mehta said standardised product information, infrastructure such as Bima Sugam and restrictions on dark patterns could help customers choose policies more directly and neutrally.
Business-model impact
Industry Concerns
Insurtechs dependent on high first-year commissions and NBFCs that earn fee income from insurance distribution could face significant pressure.
Regulatory And Consumer Benefits
The reforms could create opportunities around payments, renewals, servicing, policy management and claims support, according to Hanut Mehta.
Key facts
- Regulator
- Insurance Regulatory and Development Authority of India (IRDAI)
- Consultation paper
- ‘Recalibrating Economics of Insurance Distribution’
- Example policy
- A two-wheeler own-damage policy with an ₹800 premium
- Proposed IDE commission
- 5% for motor own-damage, personal accident and legal liability products
- New-vehicle third-party insurance
- Zero commission proposed for insurance distribution entities and a 2.5% cap for agents or associates
- Insurance gap
- About 60% of two-wheelers are described as uninsured
- Estimated NBFC impact
- Jefferies estimates commission cuts of 50–66% from FY28 onward
Quotes
Indraneel Chatterjee
InsuranceDekho COO and co-founder
“At such levels, it could become difficult to sustain a distribution network for lower-value policies, potentially making this segment less attractive for those on the ground.”
businesstoday.in
“These reforms will separate insurtech models built on commissions from those built on customer value.”
businesstoday.in
Sources
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