IRDAI New Rules: A win for policyholders, a blow to distributors! Find out how you stand to benefit from IRDAI's new proposal..

Impact of IRDAI’s Commission & Expense Caps: While the country's insurance sector has grown rapidly, the expansion of actual insurance coverage has not kept pace with the rate at which premium money has flowed out of people's pockets. Meanwhile, the costs associated with selling insurance and the commissions paid to intermediaries have risen so sharply that questions began to arise regarding whether customers were receiving true value for their premiums.

To address this issue, the Insurance Regulatory and Development Authority of India (IRDAI) has released a consultation paper on insurance distribution reforms. The regulator has proposed a five-year roadmap to reduce the Expenses of Management (EoM) for insurance companies and is preparing to rein in the hefty commissions paid to agents and corporate agents.

Let us understand in simple terms how these stringent proposals from the IRDAI will impact the insurance sector, why policyholders stand to benefit directly, and the extent of the blow this deals to companies and intermediaries.

Why was there a need for reforms?

Data from the IRDAI clearly indicates that insurance penetration in India has not seen significant improvement over the last decade:

Stagnant number of policies: In the 2015-16 financial year, approximately 26.6 million (266 lakh) new individual life insurance policies were sold; by the 2024-25 financial year, this figure had risen only marginally to 27 million (270 lakh). The total number of policies in force has also remained stagnant at around 327 million (3,270 lakh).

Growth mirroring GDP: The country's GDP growth rate has averaged 10% over the past decade. During this same period, the life insurance business grew at a rate of 10%, while the general insurance business grew at 13%. In other words, despite rising revenues, the insurance sector has failed to outpace the broader economy.

The goal of 'Insurance for All' by 2047 remains distant: While the number of general insurance policies has increased, the pace is far too slow to achieve the national target of 'Insurance for All' by 2047.

Sharp surge in business expenses and commissions

While the customer base remained stagnant, the expenses incurred by insurance companies and their agents were skyrocketing:

High cost of doing business: The cost of doing business (CoDB) for life insurance companies has risen to a range of 18%–39% (excluding LIC and SBI Life, which have a CoDB of 10–12%). In the general insurance sector, this figure ranges from 20% to 48%.

Spike in commissions (125%–173%): Between the 2023 and 2025 fiscal years, new premiums generated through corporate agents (such as banks and online aggregators) grew by 28%, yet their total commissions and payouts surged by 125%! For general insurance brokers, premiums rose by 37%, while their commissions skyrocketed by 173%.

30–60% extra rewards: Beyond base commissions, brokers and agents were receiving additional incentives or rewards ranging from 30% to 60%—the entire burden of which fell directly on customer premiums.

IRDAI's new formula: How much will company expenses decrease?

IRDAI has prepared a 5-year roadmap to reduce management expense limits for companies:

Life Insurance Companies: The current 30% limit must be reduced to 15% within two years and to 12.5% ​​within five years.

General Insurance Companies: The current limit must be capped at 25% within two years and 20% within five years.

Commission to be determined based on Premium Paying Term (PPT)

A welcome move for customers is the proposal to fix the first-year commission based on the policy term:

PPT of less than 5 years: Maximum commission of 5% for agencies and 6.25% for agents.

PPT of 5 years: 10% for agencies and 12.5% ​​for agents.

PPT of 6 to 8 years: 14% for agencies and 17.5% for agents.

PPT of 10 years or more: Maximum of 20% for agencies and 25% for agents.

Impact on companies and distributors: Why the scramble?

Proposals to curb commissions and operating expenses will directly impact the earnings of insurance distribution companies.

Sharp drop in shares: Following the announcement of this proposal, fintech platforms like PB Fintech (Policybazaar) and Turtlemint witnessed a massive crash of over 35% in their share prices and valuations.

Agents' enthusiasm may wane: According to an IIFL report, reduced commissions could dampen distributor interest, potentially leading to a short-term impact on new business volumes and fresh capital inflows. How will policyholders benefit directly?

Even though this proposal may deal a blow to the margins of companies and agents, it could prove to be a massive boon for ordinary customers:

Lower premiums and better returns: As distribution and management costs decrease, a larger portion of customer premiums in savings-oriented policies (such as endowment plans or ULIPs) will be directed straight into investments. This will result in higher returns upon maturity.

Policies could become cheaper: Reduced operating costs may allow companies to lower the prices of insurance products—specifically, premium rates.

Increased focus on claims and service: Previously, agents focused primarily on selling new policies. The IRDAI is now emphasizing policy persistency, better advisory services, and seamless claim settlements.

Reduction in complaints: In the general insurance sector, complaints registered on the 'Bima Bharosa' portal rose from 78,347 in FY23 to 137,361 in FY25, with 69% of these complaints related specifically to claims. Curbing expenses will enable companies to devote more attention to claim servicing.

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