IRDAI proposes zero commission on third-party motor cover for new vehicles

New Delhi: The Insurance Regulatory and Development Authority of India (IRDAI) has proposed zero commission for distribution entities on mandatory third-party motor insurance for new vehicles, calling it a “nil-effort” product even as dealers and OEM-linked brokers command commissions as high as 38%. The proposal is part of a consultation paper, Recalibrating Economics of Insurance Distribution, issued by the regulator on September 23.

The regulator’s case rests on how a new vehicle is sold. Registration by transport authorities happens only after proof of insurance is produced, so the buyer cannot leave the showroom without a policy. Third-party premiums are also regulated. Even so, the paper says average commission on third-party cover rose from 4.3% in FY23 to 22% in FY25.

IRDAI: What dealers earn today

In FY25, OEM brokers and motor insurance service providers (MISPs), the dealers who sell insurance, generated ₹29,000 crore of premium and were paid almost ₹7,050 crore in commission, an average of about 24%. On new vehicles, OEM brokers averaged 27% and MISPs 38%. On old vehicles, MISPs still averaged 12%, although many dealers run attached garages and the sale needs little effort, the paper says. Banks and NBFCs that finance vehicle purchases and insist on bundling loan and insurance earned 16%. In each case, IRDAI notes, customers are unaware of the commission.

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In IRDAI’s sample of brokers, motor premium grew about 34% between FY23 and FY25, while motor commission grew about 259%, taking the average commission rate from about 9% to about 25%.

IRDAI: The proposed limits

For new vehicles, distribution entities would get no commission on third-party cover, while agents and associates could earn up to 2.5%. On own-damage cover for new vehicles, the caps would be 5% for distribution entities and 10% for agents and associates.

For old vehicles, third-party commission would be capped at 2.5% for distribution entities and garages and 5% for agents and associates. Own-damage cover on old vehicles could earn up to 10% for distribution entities and garages and 15% for agents and associates.

For motor insurance packaged with a loan, the paper proposes nil commission on third-party cover and 5% on own damage, for both new and old vehicles. It also proposes to ban compulsory bundling of insurance with loans.

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Obligations on dealers

Dealers that are companies, LLPs, cooperatives or registered partnerships and want to sell insurance would have to register as distribution entities, which can sell products of several insurers. Proprietorships and unregistered partnerships would have to become point-of-sales persons of a registered entity, or associates of a single insurer.

Dealers would also face conduct rules. They would have to display the option to buy on a market infrastructure platform such as Bima Sugam, with a QR code, and tell new-vehicle buyers about it. They could not deny cashless repair because a policy was bought elsewhere, and could not sign agreements with manufacturers or brokers that reward them for insurance sales in ways that go against policyholders. Such platforms would charge no more than 5% of premium.

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IRDAI also says it has heard concerns that some OEM-linked brokers press insurers not to offer lower prices through other channels. Where this happens, it says, it restricts price competition and is contrary to policyholders’ interests. The paper does not name any broker or insurer.

The proposals are open for comment until October 25, 2026, through the Insurance Information Bureau portal, and would take effect only after regulations are notified. The paper does not say when the caps would apply. It has asked whether offering the platform option to new-vehicle buyers, with an opt-out, should be made mandatory.

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Also Read: IRDAI Issues Consultation Paper on Insurance Distribution Reforms