IRDAI wants to cap insurance commissions and punish mis-selling. Here is what changes for buyers
The regulator's draft would limit agent and broker payouts, ban forcing insurance on loan customers and claw back commissions on mis-sold policies. Comments are open until 25 October.
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed an overhaul of how insurance is sold. The aim is to stop agents, banks and brokers from pushing policies that pay them well but do not suit the buyer.
The consultation paper, titled “Recalibrating Economics of Insurance Distribution”, was released on 23 September. The public can comment until 25 October.
The key proposals
- Commission caps. Life insurers’ total distribution spend would be capped at 15% of premium over two years and 12.5% over five years. For general insurers the caps would be 25% and 20%.
- Less upfront, more on renewal. More of the commission would be paid when a policy is renewed, which rewards selling policies people keep.
- No forced bundling. Lenders could not make insurance compulsory with a loan, and premiums would have to be paid separately rather than added to the loan.
- Clawbacks. Commissions could be taken back if a policy is found to have been mis-sold.
- Traceability. Each policy would carry the identity of the salesperson, and a public registry would record mis-selling cases.
Why the regulator is acting
The numbers in the paper show commissions growing much faster than the business itself. Between FY23 and FY25, broker commissions in general insurance rose 173% while premiums grew 37%. In motor insurance, commissions jumped 259% against premium growth of 34%. In retail health insurance, commissions rose from about 10% to 30% of premium.
Complaints on IRDAI’s Bima Bharosa portal rose from 78,347 in FY23 to 1,37,361 in FY25. Only 48% of agent-sold life policies are still running after 61 months, compared with 71% of policies bought online.
Higher sales-linked incentives encourage distributors to prioritise volumes over customer needs. — Nagaraja Sarma, quoted by ThePrint
What it means for you
If the rules go through, you should face less pressure to buy a policy when you take a home or car loan, and sellers will have less reason to push high-commission products.
Sources: ThePrint.
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