IRDAI Commission Paper to be Directional; Extends Runway for Distributors
IRDAI is preparing a consultation paper on insurance commission structures that will remain directional in nature, without prescribing specific commission slabs or rate figures.
IRDAI is driving structural reforms to build a transparent, accessible, and customer-first insurance ecosystem.
New Delhi, IRDAI: The Insurance Regulatory and Development Authority (IRDAI) is preparing a consultation paper on insurance commission structures that will remain directional in nature, without prescribing specific commission slabs or rate figures, according to television channels, citing sources in the know of the matter. The paper is expected in the coming weeks, with full regulatory implementation targeted for April 2027.
The paper has been in the works for most of this year and has slipped past more than one expected date. In May, media reports citing sources said IRDAI was reviewing commission rules across distribution channels, with a consultation paper expected by the end of that month. In July, reports said IRDAI Chairman Ajay Seth had indicated the regulator was preparing a consultation paper on distribution reforms, expected by the end of that month.
The review follows the commission regulations notified in 2023, which moved away from product-wise commission ceilings and shifted the constraint to an insurer’s overall expenses of management. Under the current framework, distributors can earn commissions of up to 40% of premium on certain life and health products, with a substantial portion paid at the time of sale.
The extended timeline and non-prescriptive approach have cheered market participants, particularly technology-enabled insurance distribution platforms. Shares of PB Fintech moved higher on the news, signalling investor confidence.
The stock has a record of reacting sharply to commission-related regulatory news in either direction. In December 2025, PB Fintech fell 5.35% to Rs 1,821.45 after media reports said the proposed Insurance Laws (Amendment) Bill could empower IRDAI to cap agent commissions through formal regulations. In April this year, reports quoted the Department of Financial Services Secretary flagging high insurance commissions as a government concern, with IRDAI expected to issue a draft notification on the matter.
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IRDAI: Why Directional Matters
By framing its approach as directional guidance rather than hard caps, the IRDAI is buying the insurance distribution industry time. Companies get roughly six to seven months from paper publication to April 2027 implementation to adjust business models.
The directional nature means the regulator is signalling intent without locking in specifics.
A consultation paper is not a binding instrument. It sets out the regulator’s proposals for stakeholder comment, after which draft regulations are typically issued before final notification — a sequence that leaves room for the eventual numbers to differ from what the paper signals.
IRDAI: Who Gets Hit Hardest
The consultation paper is expected to propose significant commission reductions for banks. Banks, which rely on high commission fees to offset acquisition costs in insurance distribution, face the sharpest margin pressure.
The underlying design principle reported so far is effort-based remuneration. IRDAI is looking to differentiate between high-touch agency operations and lower-touch models such as web aggregators and some bancassurance arrangements, with traditional agents involved in prospecting, onboarding, advice and post-sale servicing qualifying for comparatively higher commission allowances, while channels relying on digital interfaces or bank branches with lower engagement could see tighter structures.
The stakes for insurers are tied to how much business these channels carry. Corporate agents and brokers, which include banking partnerships, accounted for roughly 60% of new business premiums for private life insurers in FY25. The regulator is separately introducing increased commission disclosure requirements and “tagging” of individual salespersons, set to begin on January 1, 2027.
Bancassurance has been under regulatory scrutiny for close to three years. IRDAI set up a task force in October 2023 to review the bancassurance framework amid complaints of mis-selling and forced selling of policies, and media reports have previously flagged a proposal to move bancassurance from a commission-based model to a transaction fee structure.
IRDAI: Market Implication
The regulatory signal reflects IRDAI’s broader policy intent to make insurance more accessible by reducing distribution friction costs. High commission structures, particularly in agent channels, have historically inflated policy premiums and limited market penetration. The regulator’s move toward commission rationalization is about structural alignment—favoring efficient distribution models over cost-heavy ones.
