IRDAI proposes insurance commission caps, lower expense limits

The proposals are part of a two-part consultation paper titled Recalibrating Economics of Insurance Distribution, released on September 23.

Under the proposed framework, commissions would be capped based on the insurance product, distribution channel and the effort involved in selling and servicing a policy. The proposed limits would cover commissions as well as incentives, rewards, reimbursements and other benefits paid to distributors.

For individual health insurance, IRDAI has proposed a first-year commission cap of 15% for distribution entities and 20% for agents and associates. For renewals and portability, the proposed caps are 5% and 10%, respectively.

For individual linked and non-linked life insurance policies with a premium payment term of 10 years or more, first-year commission would be capped at 20% for distribution entities and 25% for agents. For policies with a six-to-eight-year payment term, the proposed caps are 14% and 17.5%, respectively.

The regulator has proposed zero commission for distribution entities on motor third-party insurance, while agents and associates would be allowed a commission of 2.5%. For motor own-damage, personal accident and legal liability covers on new vehicles, the proposed caps are 5% for distribution entities and 10% for agents and associates.

IRDAI has also proposed lower Expense of Management (EoM) limits. For life insurers, the EoM limit would be brought down to 15% of gross direct premium income within two years and 12.5% within five years. For general insurers, the limit would be reduced to 20% within five years, with the benchmark shifting to domestic gross direct premium income.

The regulator said the proposals are aimed at reducing distribution and operating costs, improving transparency and ensuring better value for policyholders. The consultation paper also proposes measures to curb mis-selling, regulate loan-linked insurance sales and strengthen disclosure requirements.

The proposals are open for stakeholder comments until October 25, 2026.