The Insurance Regulatory and Development Authority of India’s proposed overhaul of insurance distribution could make policies more transparent and potentially cheaper, but it may also weaken access to small-ticket insurance in smaller cities and towns. The proposal is therefore not simply a question of whether commissions will fall. It is a test of whether India can reduce the cost of selling insurance without reducing the reach and service that make a policy usable.
IRDAI has proposed bringing back product-level commission caps, after removing 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 proposal also includes lower expense limits for insurers, tighter restrictions against mis-selling and greater transparency around distributor remuneration.
The changes are still under discussion and may be revised after feedback from the insurance industry and other stakeholders. That means the final effect on premiums, distribution and customer service cannot yet be established. The available evidence, however, points to a structural change in how insurance is sold and how its costs are distributed across insurers, intermediaries and customers.
## What IRDAI insurance reforms are trying to change
Distribution is a significant part of the cost of selling an insurance policy. If insurers pay less in commissions and incur lower expenses, there could eventually be room to reduce premiums. But that outcome is not automatic. Insurers would still have to pass on any savings to policyholders, and the proposal itself does not guarantee that they will do so.
The distinction matters because a lower distribution cost and a lower customer price are not the same thing. The former is an internal change in the economics of selling a policy. The latter depends on how insurers set premiums and whether regulatory changes translate into cheaper products. As Kunal Gupta, Co-founder and CEO of EMotorad, told NDTV, commission caps could reduce distribution costs, but the benefit to customers would depend on whether insurers pass those savings on.
Gupta also linked the reform to the quality of consumer choice. For a customer buying insurance for an electric cycle, he said, the product should be an informed choice, with clear information on coverage, price and the claims process. This shifts the discussion beyond the commission amount. A policy that is cheap but difficult to understand or use may not deliver meaningful protection.
The proposed framework also targets the way insurance is sold alongside loans. Banks would be prohibited from compulsory bundling of insurance with credit or loans, although they could continue to offer insurance with a loan in permitted combinations. Where a lower loan rate is offered if insurance is purchased, the framework would require greater disclosure and allow the customer to buy insurance from any insurer.
That provision addresses a common information problem in financial transactions: customers may not always be able to separate the cost of borrowing from the cost of insurance. Greater disclosure could make the choice clearer by showing whether insurance is genuinely required, what it costs and whether the customer has alternatives. The proposal would also restrict volume-linked and reward-linked incentives for bank and non-banking financial company employees selling insurance.
## The small-ticket insurance problem
The strongest tension in the proposal concerns policies that generate relatively little revenue but still require time and effort to sell and service. A policy worth Rs 5,000 or Rs 10,000 may demand almost as much customer interaction as a much larger policy. If commissions fall sharply, distributors may have less financial incentive to sell such products or operate in markets where demand is lower.
Two-wheeler insurance is one example identified in the source material. Such policies are linked to a large and geographically dispersed customer base, including buyers outside major urban centres. If distribution becomes less attractive, the consequence may not be a direct increase in the premium. It could instead be reduced availability, less active selling or weaker assistance during renewal and claims.
Indraneel Chatterjee, COO and Co-Founder of InsuranceDekho, said the effect of the reforms should be assessed beyond the potential reduction in costs. If distribution economics become difficult for lower-ticket policies or in smaller cities, he said, distributors may concentrate on larger cities and higher-value products. That could create access gaps, particularly for two-wheeler insurance, where penetration remains low.
This is an urban systems question as much as an insurance question. India’s formal financial and service networks are not evenly distributed across its cities, towns and rural areas. A distribution model that works in a large city may not work in a smaller town, where customer acquisition, documentation, servicing and claims support can require more time relative to the value of the policy.
IRDAI’s proposal recognises this geographical challenge by including additional commission provisions for policies sold in smaller towns and rural areas. The apparent objective is to preserve an incentive to distribute insurance where penetration is lower. Whether those provisions are sufficient will depend on the final structure of the rules and the cost of servicing customers across different locations.
## The service question comes after the sale
The consumer impact of the reforms will also be measured after a policy is purchased. Renewal, changes to personal details and claims support are part of the product experience, even though they are often invisible when a policy is being sold.
If distributors earn less from a policy, there may be pressure on the amount of post-sale assistance they provide. Chatterjee told NDTV that the proposed changes could affect support during servicing and claims. This is not a claim that the proposed rules will make claims harder. It is a warning that the economics of distribution can influence the level of human assistance available to policyholders.
The issue is especially important for customers who do not buy insurance frequently or who may not be comfortable completing every process digitally. Transparent pricing can improve the initial purchase decision, but customers also need to know how to renew a policy, submit documents and seek help when a claim arises. A reduction in commissions could improve efficiency while simultaneously weakening these support functions if the framework does not preserve incentives for service.
Shivendra Pancholi, Executive Director at Coverfox, said 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 described the longer-term opportunity as a more transparent marketplace in which suitability, affordability and service quality play a larger role.
That is the central policy balance. The regulator is trying to reduce incentives that can lead to unsuitable sales while retaining enough commercial motivation for distributors to reach customers and support them. Both objectives are connected: a customer who receives clear information but cannot access help later has not received complete protection.
## The policy trade-off for India’s cities and towns
The proposed IRDAI insurance reforms are aimed at changing the economics of distribution, not merely adjusting a commission schedule. They address several points at which consumers may have limited bargaining power: when insurance is offered with a loan, when a distributor’s incentive is not visible, and when product choice is shaped by rewards or sales targets.
At the same time, the proposal exposes the uneven geography of access. Small-ticket products may be particularly vulnerable if the cost of reaching and servicing customers exceeds the revenue available to distributors. Smaller cities and towns could face the greatest pressure because they may have fewer distribution channels and lower insurance demand.
The evidence supplied with the proposal does not establish whether premiums will fall, how insurers will respond or whether claims support will deteriorate. Those outcomes will depend on the final rules, the way insurers pass on any cost savings and the incentives created for distribution beyond large cities.
The next stage of the process is therefore important. IRDAI is expected to consider feedback from the industry and other stakeholders before finalising the framework. The key questions will be whether the new limits improve transparency, whether consumers receive a measurable cost benefit and whether the system continues to make insurance available, understandable and serviceable across different policy types and geographies.
