Life insurance companies paid ₹60,800 crore as commission in 2024–25, an 18% rise year-on-year. This growth far outpaced premium collections, which increased by 6.73% to ₹8.86 lakh crore.
The commission expenses ratio (commission expenses expressed as a percentage of premium) edged up to 6.86% from 6.21% in 2023–24, according to the FY25 annual report of the Insurance Regulatory and Development Authority of India. Of the total commission payout, ₹40,824.94 crore was paid towards the acquisition of new business, while ₹19,974.97 crore was paid on renewal premiums.
Efficiency Divergence
The increase in commission payouts comes even as operating expenses of life insurers declined by 13.14% to ₹77,342 crore. The operating expenses ratio (operating expenses as a percentage of gross premium underwritten) for the industry fell from 10.73% in 2023–24 to 8.73% in 2024–25.
This gap reflects the growing expense of customer acquisition and retention in an increasingly competitive market, as insurers continue to rely largely on commission-driven distribution to sustain sales. The shift comes even as insurers, following the GST rate cut, are renegotiating commission arrangements with distributors to offset the impact of lower input tax credit.
Commission and operating expenses formed a substantial portion of total costs in the non-life or general insurance industry. The combined gross commission expenses of public sector general insurers, private general insurers, standalone health insurers and specialised insurers stood at ₹47,266 crore for FY25. This was significantly higher than ₹37,811-crore operating expenses for the entire industry.
As a result, 15 of the 35 non-life insurers and eight of the 25 life insurers breached the limits prescribed under the Irdai Regulations, 2024.
RBI’s Warning
The annual report’s findings coincide with the Reserve Bank of India’s caution that high distribution costs are constraining the expansion of insurance coverage. In its Financial Stability Report on Wednesday, the RBI said elevated expenses, embedded in product pricing, reduce affordability and contribute to a widening gap between insurance density and penetration.
“A key pressure in the insurance sector is the persistence of a high expense structure, particularly acquisition costs,” the RBI said. “A meaningful expansion of coverage is also constrained by high expense structures. With high distribution costs embedded in pricing, affordability is reduced, leading to a divergence between insurance density and penetration.”
As per reports, Irdai will prepare draft regulations aimed at curbing insurance commissions, signalling a sharper regulatory focus on distribution costs.