Irdai distribution reforms will hurt policyholders, cost jobs and slow insurance growth: IBAI

IBAI said it supports the regulator’s stated objectives of policyholder protection, transparency, curbing misselling and wider insurance coverage. However, it said its concern is that the paper’s central instrument — more than 30 separate commission caps by product and channel, together with a one-third cut in insurers’ overall expense limit — could harm the very policyholders that Irdai seeks to protect.

In a sweeping overhaul of insurance distribution, Irdai last week proposed bringing back hard caps on commissions based on the segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing policies. The paper proposed sharp cuts in product-wise commissions, including a reduction in term insurance commissions to 25-30% from 51%, health insurance to 15-20% from 24%, motor insurance to 0-15% from 26%, and savings insurance plans to 5-25% from 14-37%.

The draft regulation also proposed a sharp reduction in the expenses of management (EoM) limit for life insurers to 15% within two years and 12.5% within five years, from the current overall limit of 30-35%. For general insurers, the EoM limit is proposed to decline from 30% to 20% over five years. For standalone health insurers, the limit would fall to 30% from 35%.

“An expense limit reduced by over 30% within five years cannot be met by efficiency alone; insurance companies will land up reducing sales, servicing and claims staff at private and public sector insurers alike,” IBAI said.

The broker association also said Irdai’s own figures show that total expenses of management in general insurance fell from 28.2% of premium in FY2022-23 to 26.5% in FY2024-25, while premium grew by about 13% a year. “The apparent rise in reported commission over that period largely reflects the reclassification of payments previously reported under other heads — a change the paper itself acknowledges,” it said.

IBAI also said Irdai’s paper relies in places on outlying commission and margin figures. While IBAI acknowledged that a 93% commission on group insurance is an anomaly and should be investigated under fair market conduct, it said showing PAT margins of select brokers is non-representative of the larger broking industry, where a vast majority operate on single-digit margins or barely break even.

IBAI also highlighted the potential impact on jobs. As of March 31, 2025, insurance brokers sponsored 14.81 lakh of India’s 27.18 lakh point-of-sale persons and 16,230 of 26,316 motor insurance service providers, most of them self-employed in Tier-2 and Tier-3 towns, in addition to professionals directly employed by broking firms.

“Commission caps where the intermediary earns below the cost of serving these customers will end reach to these customers, defeating the very objective of this reform,” an IBAI spokesperson said.

The brokers’ lobby also said the proposals would reduce distribution reach precisely when the country is pursuing the ‘Insurance for All by 2047’ agenda, affecting people who reach customers in small towns and those who service them within insurers. It also said the proposal contains no mechanism to ensure that any savings reach policyholders through lower premiums.

A constructive way forward, according to IBAI, is to retain the 2023 expense-of-management framework, with tighter computation rules if required; confine caps to credit-linked and other coerced-choice sales where the paper’s evidence is strongest.

The apex body of insurance brokers said it will place its detailed response before Irdai by October 25 and remain committed to constructive engagement with the regulator and the government.