Irdai’s distribution reforms put 1 million livelihoods at risk: IBAI

The apex body representing India’s 798 licensed insurance brokers raised these concerns in a letter to Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman.

In its letter, IBAI said the proposed one-third cut in expense limits for insurers cannot be achieved through efficiency alone and would instead lead to reductions in sales, servicing and claims staff across private and public sector insurers. ”Distribution reach shrinks precisely when Insurance for All by 2047 requires more of it, with penetration at 3.7% of GDP against a global average above 7%,” it said.

As per Irdai data for FY25, insurance distribution employs more than 8.3 million professionals, including individual agents, micro-insurance agents, point-of-sale persons (POSPs) and motor insurance service providers (MISPs), among others. The sector also has more than 770 brokers, 660 corporate agents and 22 web aggregators. Brokers sponsor 14.81 lakh of India’s 27.18 lakh POSPs and 62% of motor insurance service providers, with most of these professionals being self-employed and operating in Tier-2 and Tier-3 towns, IBAI said.

IBAI’s letter comes a week after Irdai unveiled sweeping distribution reforms including hard caps on commissions across products and distribution channels based on the effort involved in selling and servicing policies. The consultation paper has proposed over 30 different commission caps across term, health, motor and savings insurance plans.

IBAI argued that imposing sub-caps could recreate the conditions that resulted in ₹824 crore of bogus GST input credit at 15 insurers before the 2023 EoM guidelines. The changes could incentivise additional payments through alternative mechanisms, such as overriding commissions, it said.

“This would recreate GST compliance challenges for the entire market that the 2023 reforms had successfully addressed,” IBAI said. Public sector insurers, which are bound by government audits, cannot match off-book payments and could again lose market share, as they did under the earlier product-wise cap regime, when their share fell from 65% to about 36%, IBAI said. This would have implications for their dividends and the need for capital support from the government, it added.

Irdai’s draft regulation has 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, while for standalone health insurers, the limit would fall to 30% from 35%.

IBAI said small and emerging insurers and standalone health insurers, whose fixed costs cannot shrink in line with a percentage-based limit, could face a race for premium at low or negative margins, creating a non-level playing field and reducing competition.

The brokers’ association also pointed out that general insurers’ management expenses declined from 28.2% of premiums in FY23 to 26.5% in FY25, while premiums grew by around 13% annually. It argued that the reported increase in commissions partly reflected the reclassification of payments that were previously recorded under other expense heads.

The loss ratio of the general insurance industry increased from 82.88% in FY25 to 84.8% in FY26, while the combined ratio rose to 117.83% from 112.61% in FY25. IBAI said these ratios compare favourably with loss ratios in leading global insurance markets.

”Out of Rs 100 premium Rs 87.3 is paid as claims,” it said, adding that for commercial lines of business, including fire, group health and miscellaneous segments, premiums are at an all-time low while claims ratios remain high in favour of policyholders by global standards.

Seeking the intervention of the Prime Minister and Finance Minister, IBAI said, “No regulation on commission or expense limits is notified without a published impact assessment covering policyholders, employment, public sector insurers and foreign investment,” and added that the 2023 framework runs until its scheduled 2028 review.