The Insurance Regulatory and Development Authority of India’s proposed motor insurance rules could change one of the most routine parts of buying a new vehicle: the assumption that insurance will be purchased through the dealership. The consultation paper on “Recalibrating the Economics of Insurance Distribution” proposes lower remuneration for new-vehicle policies, a more visible digital purchase route through platforms such as Bima Sugam, and protection for cashless repair access even when a customer buys insurance elsewhere.
The proposal is not yet a final rule. Its significance lies in the institutional relationship it seeks to change. At present, buying a vehicle, arranging finance, purchasing insurance and accessing after-sales service are often connected through the dealership. IRDAI’s proposals would separate at least part of that chain by making insurance choice more visible and by limiting the financial incentives attached to new-vehicle policies.
That matters beyond the showroom. Motor insurance is a required part of registering a vehicle, while cashless repair networks influence where owners take damaged vehicles for servicing. The way these services are bundled affects the cost, convenience and transparency of vehicle ownership. In cities, where private vehicles remain closely tied to commuting, delivery work and household mobility, changes in the insurance distribution system can influence the experience of owning and maintaining a vehicle even if they do not alter the vehicle itself.
Under the proposed framework, motor insurance products for new vehicles would have to be made available through Market Infrastructure Institution platforms such as Bima Sugam. A dealer would be required to prominently display the option of purchasing insurance through such a platform, potentially including a QR code that gives the buyer direct access to the digital route. The stated effect would be to make an alternative to the dealership’s insurance offering more visible at the point of purchase.
This is a change in how choice is presented. A buyer may already be able to obtain insurance from different providers, but the purchase environment at a dealership can make the dealer’s arrangement the practical default. By requiring a visible digital alternative, IRDAI is proposing to move comparison and purchase closer to a direct-to-consumer model. The supplied material does not establish how many buyers currently purchase insurance through dealerships, or how the proposed digital option would be used. It does, however, indicate the regulator’s direction: reduce dependence on dealer-led distribution and create a more transparent route for policy purchase.
The proposed remuneration limits are central to that shift. IRDAI has proposed nil remuneration for third-party motor insurance on new vehicles and a 5 per cent ceiling for own-damage and related covers. Technology, awareness and related spending would also be brought within the commission ceiling. The proposal treats mandatory third-party cover as a “nil-effort product” because insurance is required for vehicle registration. It similarly classifies own-damage and comprehensive insurance for new vehicles as low-effort products.
The regulator’s reasoning is linked to the growth of commissions. According to the consultation paper, motor insurance premiums increased by around 34 per cent between FY23 and FY25, while commissions rose by around 259 per cent. The average commission rate in motor insurance was around 24 per cent in FY25, although the rate varied across products and distribution channels. These figures form the economic basis for IRDAI’s attempt to recalibrate how much distribution earns from new-vehicle policies.
The figures also show why the proposal is more than a narrow compliance change. Premium growth and commission growth have moved at very different rates, according to the regulator’s cited data. IRDAI is therefore examining not merely whether insurance is available, but how the distribution chain is compensated and whether the existing structure creates incentives that are out of proportion to the effort involved.
For automobile dealers, the consequences could be substantial. Shailaja Lall, partner at Shardul Amarchand Mangaldas & Co., told NDTV that reducing upfront earnings from new-vehicle policies and tightening dealer-linked arrangements could compress distribution margins. Motor insurance has been a meaningful source of income for automobile dealers, original equipment manufacturer-linked brokers and non-banking financial companies for more than a decade, according to Deloitte India partner Debashish Banerjee.
The effect may not be uniform across the market. Lall said smaller dealers that do not qualify as Insurance Distribution Entities, or IDEs, may have to operate as points of sale or through other permitted arrangements. Under the proposed system, dealers that meet the requirements would need to register as IDEs if they want to sell insurance. Dealers that do not qualify could operate as a Point of Sales Person of an IDE or associate with a single insurer.
This creates a new regulatory distinction inside the dealership network. The question will not only be whether a dealer sells insurance, but under which institutional status it does so and how its relationship with an insurer or distribution entity is structured. The source material does not specify the final eligibility thresholds or compliance costs for IDE registration. That absence is important because the effect on large dealer groups and smaller outlets could differ considerably.
IRDAI is also proposing restrictions on arrangements between dealers, automobile manufacturers and insurance distribution entities where those arrangements could conflict with policyholder interests. This addresses the possibility that commercial relationships across the vehicle sale, financing and insurance chain may influence the options presented to customers. The proposed framework would not necessarily eliminate dealership participation, but it could limit the extent to which insurance sales remain embedded in a wider commercial package.
Cashless repair is the other major consumer-facing element. IRDAI has proposed that dealers should not deny cashless repair merely because a customer purchased motor insurance through another distributor. The protection would remain subject to the final rules and the terms of the insurance policy, but its principle is clear: the place where a policy is purchased should not automatically determine access to a dealer’s cashless repair facility.
That provision separates distribution from servicing. A vehicle owner could potentially choose a policy through a digital platform or another distributor and still use the dealer’s cashless repair network, subject to policy conditions. For consumers, this could reduce the practical cost of choosing an alternative insurer. Without such a provision, the promise of choice could remain limited if customers feared losing access to convenient repair arrangements.
The proposal therefore addresses two different forms of consumer friction. The first is informational and commercial: making alternative insurance purchase routes visible at the dealership. The second is operational: preventing the repair relationship from being used to penalise a customer for purchasing insurance elsewhere. Together, they seek to make the insurance decision less dependent on the dealer’s sales channel.
Banerjee described the proposed nil commission on mandatory third-party cover for new vehicles as a significant structural intervention aimed at the high cost of acquiring motor insurance customers. He said the changes could encourage direct-to-consumer channels and platforms such as Bima Sugam, while reducing distribution income. Lall similarly said revenue pressure could push distributors towards renewals, servicing, technology and other permissible value-added services.
This points to a possible reorganisation of the motor insurance business rather than the disappearance of intermediaries. If upfront earnings decline, distributors may place greater emphasis on activities that continue after the vehicle sale. However, the supplied material does not establish which alternative revenue models will emerge or whether they will provide the same income as new-policy commissions. It only identifies the commercial pressure that the proposed ceilings could create.
The policy also raises a practical question about service quality. Lall said the impact on the availability of product choice and seamless customer service would need to be examined carefully. A wider menu of policies is useful only if buyers can understand the differences, complete the purchase without unnecessary friction and receive service when they make a claim. Banerjee said the final framework would need to be practical, measurable and enforceable.
That implementation question is especially important because insurance is being purchased at a moment when customers are already managing several decisions: vehicle price, financing, registration and delivery. A digital option may increase transparency, but it does not automatically ensure that buyers can compare coverage effectively. The consultation material, as described in the report, gives visibility to the distribution problem but does not yet provide the final operating details that would determine the customer experience.
The proposed rules also show how regulators are responding to the digitisation of urban consumption. The vehicle showroom remains a physical point of sale, but the insurance transaction could increasingly move to a platform-based system. Bima Sugam is presented as one such route. The shift would bring motor insurance into the same broader transition in which consumers compare and purchase services digitally while continuing to rely on physical networks for delivery, repairs and support.
For cities, the immediate issue is not a change in road capacity or vehicle numbers. It is the institutional infrastructure around mobility. A private vehicle depends on registration, mandatory insurance, financing, maintenance and repair networks. When IRDAI changes the incentives connecting those services, it is modifying part of the system through which urban mobility is accessed and maintained.
The evidence currently confirms a proposed redistribution of power and revenue: dealers could lose part of their upfront insurance earnings, digital platforms could receive greater visibility, and consumers could gain a clearer route to purchase insurance independently. It does not yet confirm the final commission limits, eligibility rules for IDEs, or the operational details of cashless repair access. Those matters will depend on what IRDAI ultimately adopts after consultation.
The next stage is therefore regulatory, not operational. Until the final framework is notified, the proposals remain subject to change. The developments that require attention are the final remuneration ceilings, the conditions for dealer registration as IDEs, the treatment of smaller dealers, the functioning of Bima Sugam and the enforceability of the cashless repair protection. Those details will determine whether the proposed reform produces meaningful consumer choice or simply rearranges the existing distribution chain.
