Irdai proposes tighter expense limits, new commission caps for insurers
Mumbai, Sep 23, 2026
The regulator proposes phased cuts to insurers' expense limits, new commission caps and a ban on compulsory bundling of insurance with loans to lower costs and curb mis-selling
The Insurance Regulatory and Development Authority of India (Irdai) on Wednesday proposed a phased reduction in the expenses of management (EoM) limits for insurers, with life insurers required to bring company-level EoM down to 15 per cent of gross direct premium income (GDPI) within two years and 12.5 per cent within five years.
For general insurers, the regulator has proposed shifting the EoM benchmark from gross written premium (GWP) to domestic GDPI and reducing the limit from 30 per cent to 20 per cent over five years.
The consultation paper said life insurers that were already below the proposed benchmark in FY25 should bring EoM down to 10 per cent within five years, which it described as the long-term sector goal. For general insurers already below the benchmark, the proposed five-year target is 20 per cent.
Irdai said the proposed reduction in EoM is aimed at lowering the overall cost of insurance, expanding the risk pool available in general insurance and enhancing returns to policyholders in life savings products. The phased approach, it said, seeks to balance improved value and affordability for policyholders with the financial sustainability of insurers.
Alongside the EoM changes, Irdai has proposed a new framework for commissions, with limits to be determined based on the segment, line of business, distribution channel, product complexity and effort involved in selling and servicing the product.
For individual non-linked and linked products, commissions for intermediaries are proposed in the range of 5-20 per cent, depending on the premium payment term. The corresponding range for agents is 6.25-25 per cent.
For individual pure-term products, the proposed first-year commission is 25 per cent for intermediaries and 30 per cent for agents, with renewal commissions of 7.5 per cent and 10 per cent, respectively.
Commissions on individual savings products with a single premium are proposed at around 1-2 per cent, while commissions on individual pure-term single-premium products are proposed at 7.5-10 per cent.
In general insurance, Irdai has proposed zero commission for distributors on motor third-party (TP) insurance, while agents and associates would be allowed 2.5 per cent. For motor own-damage (OD), personal accident (PA) and legal liability (LL) covers on new vehicles, the proposed commission is 5 per cent for intermediaries and 10 per cent for agents and associates.
For individual health insurance, commissions for distribution entities on first-time sales are proposed at around 15 per cent, compared with 20 per cent for agents. On renewals, the proposed commission is 5 per cent for distribution entities and 10 per cent for agents and associates.
The regulator said products sold in underserved areas may qualify for rewards over and above the normal commission limits.
Irdai has also proposed reducing the regulatory fee paid by insurers from 0.05 per cent to 0.04 per cent of premium, subject to a maximum of Rs 20 crore.
The proposals also seek greater transparency in distributor remuneration, with insurers and large distributors required to disclose their commission policies and structures in simple language.
As part of measures to curb mis-selling, Irdai has proposed prohibiting compulsory bundling of insurance products with credit or loans, while allowing acceptable combinations of insurance and credit or loan products. It has also proposed creating awareness through illustrations of mis-selling.
The regulator has also proposed prohibiting volume-linked or reward-linked incentives for bank and non-banking financial company staff selling insurance, while strengthening accountability for mis-selling.
The consultation paper proposes making cost audits mandatory for all expenses of insurers, including intermediary payouts and non-monetary incentives. Insurance distribution entities with insurance-related revenue of more than Rs 100 crore would also be required to undergo cost audits.
Irdai has proposed linking an individual’s identity to the policy sold, placing information on mis-selling incidents in the public domain and providing for clawback of commissions in cases of mis-selling.
The paper also proposes Market Infrastructure Institutions (MIIs) for insurance as digital, pull-based alternatives for insurance distribution, with Bima Sugam identified as one such infrastructure.
The proposals are aimed at improving cost efficiency, strengthening safeguards around insurance distribution and enhancing value for policyholders, Irdai said.
[The Business Standard]
