IRDAI proposes commission cuts: What will happen to insurance premiums?

IRDAI has proposed tighter commission and expense limits for insurers to cut distribution costs. Experts say premiums may not fall one-to-one, with savings possibly going towards service, technology and claims.

In Short

• Goal is to reduce distribution costs and improve policyholder value
• Lower commissions may not directly reduce premiums for all products
• Savings might be used for technology, servicing, and claims processing

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed tighter limits on insurance commissions and lower Expense of Management (EoM) limits for insurers. The proposals are aimed at reducing distribution costs and improving value for policyholders.

But for customers, an important question remains: will lower commissions actually make insurance cheaper?

Experts say the answer is not straightforward. While lower distribution costs could create room for insurers to reduce premiums, the savings may also be used for technology, servicing, claims processing and other expenses.

The impact is also likely to vary across insurance products and customer segments.

WHY IS IRDAI LOOKING TO CUT DISTRIBUTION COSTS?

IRDAI's consultation paper says a significant share of insurance premiums goes towards acquisition costs. It says high commissions and multiple layers of intermediation increase the cost of delivering insurance, with consumers ultimately bearing these costs through higher premiums and lower delivered value.

The regulator has proposed recalibrating the commission framework based on factors such as the insurance segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing the product.

IRDAI has also proposed lower EoM limits through a phased approach. For life insurers, the EoM limit would move to a company-level basis linked to Gross Direct Premium Income, with the limit proposed at 15% within two years and 12.5% within five years.

For general insurers, the basis would shift from Gross Written Premium to domestic Gross Direct Premium Income, with the limit proposed to fall from 30% of GWP to 20% of GDPI over five years.

IRDAI says the proposed reduction in EoM is intended to lower the overall cost of insurance, expand the risk pool in general insurance and enhance returns to policyholders in life savings products.

WILL LOWER COMMISSIONS MEAN LOWER PREMIUMS?

Not necessarily, and certainly not by the same amount.

Indraneel Chatterjee, COO and Co-Founder of InsuranceDekho, said the proposed expense caps could reduce premiums, but it was difficult to estimate at this stage how much of the saving would reach customers.

“The cap on expenses will result in a reduction in premiums. However, it would be difficult to quantify at this stage how much of the saving will translate into lower premiums,” Chatterjee said.

He said the impact would depend on the product, ticket size, distribution channel and customer segment.

“A reduction in these costs could lead to lower premiums in several categories, although not necessarily in the same proportion as the reduction in commissions,” he said.

Shilpa Arora, Co-Founder and COO at Insurance Samadhan, also said a reduction in commissions would not automatically result in lower premiums.

“Alternative channels need to be developed where initial costs will be high. Moreover, insurance is a long term business and reduction of premium may happen in long term,” she said.

WHERE COULD THE SAVINGS GO?

Lower commissions could give insurers some room to reduce costs, but that does not mean all the savings will necessarily be passed on as lower premiums.

Saurabh Vijayvergia, Founder and CEO of CoverSure, said commissions are only one part of an insurer's overall cost structure. Expenses also cover technology, servicing, claims processing and investments needed for greater transparency and disclosure.

“A meaningful portion of any savings from distribution could also be redeployed into these areas before it reflects directly in premiums,” Vijayvergia said. He added that this could still benefit policyholders if the spending results in better customer experience.

Chatterjee made a similar point, saying insurers could use part of the savings to strengthen technology, underwriting and claims processes, improve customer servicing or absorb other operating costs. Whether savings are passed on will depend on competition, product economics, regulatory requirements and an insurer's cost structure, he said.

This means that even if the cost of distributing a policy falls, the benefit to customers could come in different forms — lower premiums, better benefits or improved service.

MOTOR INSURANCE COULD BE A DIFFERENT CASE

Motor insurance is one area where lower commissions may not directly translate into lower premiums.

Chatterjee pointed out that third-party motor insurance premiums are currently regulated and fixed. A reduction in commission, therefore, would not automatically reduce what customers pay.

The bigger concern could be whether distributors continue to find low-value motor policies viable.

Chatterjee gave the example of two-wheeler insurance. An own-damage premium of around Rs 800, with a 5% commission, would leave about Rs 40 at the distribution-entity level before considering the economics of the point-of-sale person, or PoSP.

“At such levels, it may become difficult to sustain the distribution network required to sell and service these policies,” he said.

He said the concern was particularly relevant to two-wheeler third-party insurance, where pricing is fixed and distribution is supported largely by commissions.

COULD LOWER COMMISSIONS AFFECT ACCESS TO INSURANCE?

This is one of the key concerns raised by experts.

Chatterjee said distributors could increasingly focus on higher-value policies if the economics of smaller policies become less viable. He said this could particularly affect smaller cities and low-ticket insurance products.

Arora said the proposed changes could affect most insurance products other than motor because distribution plays a critical role. She said distributors have become accustomed to higher commissions and incentives over the past few years, and their business models could therefore change.

Vijayvergia said the customer impact could be particularly visible in health insurance because such policies can involve multiple riders, add-ons, exclusions and co-pay structures that may require greater customer education. Life insurance, particularly longer-term and more complex products, could also see a meaningful impact from commission changes.

ARE HIGH COMMISSIONS THE MAIN REASON INSURANCE IS EXPENSIVE?

IRDAI's consultation paper makes a strong link between distribution costs and affordability. It says significant portions of premiums go towards acquisition costs and that high commissions and multiple layers of intermediation increase the cost of delivering insurance.

But Arora cautioned against directly linking the premium paid by customers to higher distribution costs.

“All Insurance were fighting for New Business by paying high commissions which were not controlled. Insurer were building business models on earning from renewals. So Premium is unrelated to higher distribution costs,” she said.

Chatterjee also said distribution costs are an important component of the overall cost of insurance, but it would be difficult to attribute the premium paid by a customer to commissions alone. He said acquisition costs include not just distributor payments but also customer acquisition, sales, onboarding and servicing.

For customers, the impact of the reforms should not be judged only by whether premiums fall.

Vijayvergia said customers should look at whether any reduction in price comes with the same level of coverage, exclusions, claim support and post-sale service.

Chatterjee similarly advised policyholders to look at coverage, exclusions, pricing, insurer choice, bundling with loans or other financial products, and the availability of support for renewals, policy changes and claims.

Arora said greater transparency around commissions would be one of the key outcomes for policyholders.

IRDAI's proposal also seeks greater disclosure of commission policies and structures, with the regulator saying this would allow customers to understand the distribution costs built into insurance pricing.

WILL YOUR INSURANCE BECOME CHEAPER?

The proposed reforms could reduce the cost of distributing insurance and create scope for lower premiums, but a direct one-to-one reduction cannot be assumed.

The final impact will depend on how insurers adjust their costs, how distributors respond to lower commissions and how much of the resulting savings is passed on to customers.

For some products, particularly those with high distribution costs, there could be greater scope for savings to reach policyholders. For products where premiums are regulated, such as motor third-party insurance, lower commissions do not automatically mean lower premiums.

The bigger test will therefore be whether the reforms manage to achieve both objectives IRDAI has set out: lower structural costs and wider insurance access.

IRDAI has invited comments on the consultation paper until October 25, 2026. The proposals are therefore not final yet.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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