New Delhi, October 1: The insurance industry is up in arms against a consultation paper released by the Insurance Regulatory and Development Authority of India (IRDAI), triggering a strong pushback against the changes. The reforms proposed in the paper threaten to disrupt the traditional revenue models of insurance brokers, banks and sales agents, though intended to curb mis-selling.
Industry leaders warn that if implemented in the current form, the stringent commission caps and cost controls could lead to significant revenue declines and potential job losses across the board.
Key Regulatory Proposals
The IRDAI consultation paper, titled “Recalibrating Economics of Insurance Distribution,” seeks to reverse a March 2023 policy that removed product-level commission caps in favor of board-approved insurer policies. This comes after the IRDAI has identified a steep disconnect between the premium growth and distributor earnings between FY23 and FY25.
- Life Insurance (via Corporate Agents/Banks): New business premiums grew by 28%, whereas total distributor payouts—including commissions, rewards, and non-cash incentives—surged by 125%.
- General Insurance (via Brokers): Premium collections expanded by 37%, while commission payouts grew by 173%.
- Motor Insurance: Premiums increased by 34%, while distributor payouts skyrocketed by 259%.
To eliminate mis-selling from commission driven sales, the IRDAI has proposed reintroducing hard caps on commissions, imposing stricter Expenses of Management (EoM) limits and treating all payments- gifts, travel awards or administrative reimbursements- as final commission payouts. Beyond this, the paper proposes including the salesperson’s identity tag on every policy sold, clawing back commissions in verified cases of mis-selling and banning the bundling of insurance with bank loans.
Industry reactions
Many have lauded the move, with leading author and researcher Gautam Chikermane lauding the IRDAI’s move to protect policyholders.
“IRDAI just did something it hasn’t really done in 27 years: regulate in favour of policyholders.
To rephrase Neil Armstrong, its consultation paper is one small step for the insurance sector, one giant leap for consumers,” he said on a post in X.
The proposed reforms made its impact on the markets as well, with PB Fintech, one of the leading listed insurance brokers, witnessing a Rs.25,000 crore drop in value in a single day. Leading financial influencer explains why in the series of posts on X.
Though these remain draft proposals for now, leading insurance distribution representatives, including the Insurance Brokers Association of India (IBAI) and the Life Insurance Agents Federation of India (LIAFI) have argued that such measures should not interfere with the primary source of income for individual field agents, arguing that the regulatory measures must differentiate between intentional misconduct and honest clerical errors.
The draft proposals have drawn criticism from major distribution representatives, including the Insurance Brokers Association of India (IBAI) and the Life Insurance Agents Federation of India (LIAFI).
In a statement, the LIAFI emphasized that commissions serve as the primary source of income for individual field agents, arguing that regulatory measures must differentiate between intentional misconduct and honest clerical errors:
