The Insurance Regulatory and Development Authority of India’s proposed overhaul of insurance distribution is aimed at making policies more transparent and reducing practices that can distort consumer choice. But the proposal also exposes a difficult urban and regional policy trade-off: lowering the cost of selling insurance may benefit policyholders only if insurers pass on the savings, while weaker distribution incentives could make small-ticket policies harder to sell in smaller cities and towns.
The proposals are still under discussion and may change after feedback from the industry and other stakeholders. Their significance lies less in any immediate change to premiums than in the attempt to redesign the economics of how insurance reaches customers. The framework could affect commissions paid to agents, banks and brokers, the way insurance is sold alongside loans, employee incentives at banks and non-banking finance companies, and the level of support customers receive after a policy is purchased.
For consumers, the proposed reform therefore raises two separate questions. Will insurance become cheaper and easier to understand? And if distribution becomes less profitable, will customers in lower-demand markets still receive adequate access and assistance?
IRDAI insurance overhaul targets distribution costs
A major element of the proposal is the return of product-level commission caps. IRDAI had removed such caps in 2023. Under the proposed framework, commissions would vary according to the type of policy, distribution channel, policy size and the effort required to sell and service the product.
The report says commissions on several life insurance products could be significantly lower than current levels. Health insurance commissions would also face tighter limits. For third-party motor insurance on new vehicles, the proposal is for no commission to be paid.
The underlying policy logic is straightforward. Distribution is a major part of the cost of selling an insurance product. If insurers pay less to intermediaries, the total cost of acquiring and servicing a policy could fall. That creates the possibility of lower premiums, but it does not guarantee them. Insurers would still need to pass any savings on to customers.
That distinction is important because a reduction in commissions is not the same as a reduction in the price paid by policyholders. The proposal may change the cost structure of insurance without automatically changing premiums. The eventual consumer benefit will depend on how insurers respond and how the regulator’s final framework is implemented.
Kunal Gupta, co-founder and chief executive officer of EMotorad, told NDTV that commission caps could reduce the cost of distributing insurance, but the benefit to customers would depend on insurers passing on those savings. He said buyers should be able to see clearly what a policy covers, what it costs and how to make a claim.
This places transparency at the centre of the reform. A cheaper product is not necessarily better if customers cannot understand its exclusions, service conditions or claims process. Conversely, a more transparent buying process could help customers assess insurance according to the protection it provides rather than the incentive attached to its sale.
Loan-linked insurance and the question of choice
The proposal also seeks to prohibit compulsory bundling of insurance with credit or loans. Banks could continue to offer insurance alongside a loan in permitted combinations, but customers would receive greater clarity about the cost of each product.
The proposed framework would also require greater disclosure if a bank offers a lower loan rate when insurance is purchased. Customers would be allowed to buy insurance from any insurer. This could make it easier to distinguish between cover that is genuinely required and a policy added during the loan process.
The issue has a direct bearing on how consumers experience financial products in cities. Loan customers often encounter insurance at the point of borrowing, when the immediate priority is securing credit. If the price of insurance and the terms of the loan are not clearly separated, the customer may find it difficult to compare alternatives or understand whether the cover is necessary.
The proposal’s focus on disclosure does not eliminate the possibility that banks will continue to market insurance products alongside loans. It changes the conditions under which that sale would take place. The customer’s ability to choose another insurer is intended to reduce the effect of a bank’s distribution position on the final purchase decision.
IRDAI has also proposed restrictions on volume-linked and reward-linked incentives for bank and NBFC employees selling insurance. This addresses a different part of the same problem: whether a sales target or internal reward can influence the recommendation made to a customer.
The small-ticket insurance problem
The strongest challenge to the proposed reform is that the economics of distribution are not uniform across products or locations. Selling a policy worth Rs 5,000 or Rs 10,000 can require almost as much effort as selling a higher-value policy. If the commission falls sharply, the financial incentive to sell such products may weaken.
This could affect two-wheeler insurance and other products purchased by customers outside the largest urban markets. The concern is not that the proposal would directly remove these policies from the market. Rather, distributors may become more selective about which products and locations they serve if the return no longer covers the cost of selling, servicing and supporting the policy.
Indraneel Chatterjee, chief operating officer and co-founder of InsuranceDekho, told NDTV that if distribution economics become difficult for lower-ticket policies or in smaller cities, distributors may concentrate on larger cities and higher-value products. He said this could create gaps in access, particularly for two-wheeler insurance, where penetration remains low.
This is a structural issue in insurance distribution. A framework designed around lower commissions may work differently for a high-value policy in a major city than for a lower-value policy sold in a smaller town. The customer’s need for protection may be similar, but the commercial incentive to reach that customer is not.
The proposal recognises the geographic dimension by including additional commission provisions for policies sold in smaller towns and rural areas. The intended purpose is to encourage distribution in locations where insurance penetration is lower. However, the presence of an additional provision does not by itself establish whether distribution will remain commercially viable across all products and regions.
The evidence supplied in the report therefore points to a balance that the final rules will need to manage: lower distribution costs on one side and continued geographic reach on the other. If the first objective dominates, customers could see lower costs but fewer points of access. If the second dominates, the expected savings may not materialise fully.
Post-sale service is part of the product
Insurance distribution is often assessed at the moment of purchase, but customers experience its value most clearly during renewal, policy changes and claims. The proposed reform could affect this part of the customer journey as well.
Chatterjee said lower distributor earnings could affect post-sale support, including assistance with servicing and claims. This is not a claim that the proposed rules would make claims harder. It is a warning that the economics of distribution may influence the amount of assistance available after a policy has been sold.
That distinction matters for evaluating consumer protection. A policy can appear affordable at the point of purchase while still imposing practical costs if the customer cannot obtain timely help with documentation, renewal or a claim. The regulator’s challenge is therefore not limited to making commissions visible or premiums competitive. It also involves ensuring that the service attached to a policy remains available across different customer segments.
Shivendra Pancholi, executive director at Coverfox, told NDTV that greater transparency around pricing and commissions, restrictions on practices that influence purchase decisions, and a move towards need-based distribution could help customers make more informed choices. He said the longer-term opportunity was a more transparent marketplace in which product suitability, affordability and service quality played a greater role.
What the reform reveals about insurance access
The proposed IRDAI framework is ultimately an attempt to change the relationship between price, sales incentives and access. Its consumer-facing promise is clear: customers should have more information, greater choice and less exposure to inappropriate sales practices. Its implementation challenge is equally clear: insurers and distributors must still have sufficient incentive to reach customers and provide support.
The proposal also shows why insurance cannot be treated only as a financial product. Distribution depends on geography, transaction size, customer awareness and the effort required after a policy is sold. These conditions vary considerably between major cities, smaller towns and rural markets. A single approach to commissions may therefore have different consequences across the country, even when the formal rules are the same.
The report does not establish whether premiums will fall, how insurers will respond to the proposed caps, or whether additional provisions for smaller towns will prevent gaps in access. Those outcomes will depend on the final framework and on the commercial decisions made by insurers, banks, brokers and other distributors.
What the proposal does establish is the policy direction: greater scrutiny of commissions, more separation between lending and insurance sales, tighter controls on incentives and a stronger emphasis on need-based distribution. The central test will be whether those changes improve consumer choice without weakening the reach and post-sale support on which insurance access depends.
