Insurance Agents Ask IRDAI for Up to 35% Commission Ahead of Reform Deadline
Insurance agents are seeking higher commission payouts ahead of the reform deadline, pressing IRDAI to reconsider the proposed changes to insurance distribution rules.
Insurance agents have urged IRDAI to allow commissions of up to 35% as the regulator prepares to implement proposed distribution reforms.
NEW DELHI – The Life Insurance Agents’ Federation of India-1964 (LIAFI) has written to the Insurance Regulatory and Development Authority of India (IRDAI), asking for higher commissions for individual agents while the regulator reworks how insurance is sold and paid for.
The letter is dated 15 October and arrives as stakeholders have until 25 October to respond to IRDAI’s consultation paper on distribution reforms. The federation argues that the goal of “Insurance for All” depends on a financially sustainable agency force, since agents reach customers in person, explain products and help policyholders throughout the life of a policy.
Insurance Agents: What LIAFI is asking for
The letter sets out a tiered structure linked to how long a policyholder pays premiums. The federation wants individual agents to receive 27% on policies with premium-paying terms of five to nine years, 30% on terms of 10 to 14 years, and 35% on terms of 15 years and above. It also seeks a renewal commission of 7.5% from the second to the sixth year of a policy, and 6% from the seventh year until maturity.
The regulator’s own draft points in a different direction. The consultation paper released on 23 September proposes first-year commission for agents on individual life products ranging from 6.25% to 25%, depending on the premium-paying term. For distribution entities such as corporate agents and brokers, the proposed range is 5% to 20%.
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Insurance Agents: The federation’s case
Insurance Agents: LIAFI says the removal of prescribed commission ceilings in 2023 has left payouts uneven across distribution channels. In its telling, private insurers and some other channels continued to pay higher commissions, while payouts on certain LIC policies were reportedly cut to as low as 7% from October 2024. That year, LIC lowered its first-year agent commission on some products from 35% to 28% after surrender value norms changed, though the insurer said at the time that commission had been staggered rather than reduced.
The federation says agents’ earnings are under strain from the cost of customer meetings, communication, digital services, office upkeep and travel. It puts the average monthly commission of an LIC agent at about ₹16,774, and says LIC’s commission expenditure fell 4.55% in FY26 even though around 93% of the insurer’s life business came through individual agents. The letter urges the regulator to build a fair and transparent framework that recognises agents’ contribution across the full policy term.
The letter also touches on two issues at the centre of the regulator’s agenda. On mis-selling, LIAFI says the problem is not confined to individual agents and asks for stronger oversight of corporate agents, banks and insurance brokers. On disclosure, it opposes a proposal to publish individual commission details on insurers’ websites, arguing that policyholders could then ask agents to hand back part or all of what they earn.
Insurance Agents: What the regulator has on the table
IRDAI’s paper, titled “Recalibrating Economics of Insurance Distribution,” reverses part of the 2023 approach, when product-level commission limits were replaced with an overall ceiling on an insurer’s expenses of management. The regulator now proposes bringing back specific limits based on product type, distribution channel, product complexity and the effort involved in selling and servicing a policy. It cites data from a sample covering about 92% of premium procured through corporate agents, which shows distributor remuneration rising 125% between FY23 and FY25 while new business premium grew 28%.
For individual health insurance sold for the first time, the draft proposes 15% for distribution entities and 20% for agents, with renewal rates of 5% and 10%. For new motor third-party cover, it proposes no commission for distribution entities and 2.5% for agents and associates. The paper also proposes a five-year reduction in insurers’ expense limits and a ban on volume-linked or reward-linked incentives for bank and NBFC employees who sell insurance. To address mis-selling, it suggests linking the identity of the seller to each policy, placing information on mis-selling incidents in a public registry, and allowing commission to be clawed back where mis-selling is established.
The proposals remain at the consultation stage, and IRDAI will finalise the framework after reviewing comments. Reactions have been mixed. The Insurance Brokers Association of India has warned that the norms could cut broker revenues by 60% to 70% and has asked for the feedback deadline to be pushed to the end of December. IRDAI’s chairperson has said he is open to extending deadlines and has described fears of disruption as misplaced.
A consumer survey of more than 23,000 responses found roughly seven in ten respondents favouring commission caps and about eight in ten wanting agent payouts disclosed before a policy is bought. Life insurers paid about ₹60,800 crore in commissions in FY25, according to industry data cited in coverage of the reforms, which shows what is at stake for agents, insurers and policyholders as the rules take shape.
