Car Dealers Earn Up to 38% Commission on Your Insurance. IRDAI Wants to Cut It
Car insurance sold through dealerships is facing a regulatory reset as IRDAI looks to curb high commissions on new-vehicle policies.
Car insurance commissions paid to dealers have reached as high as 38%, prompting IRDAI to propose changes to distribution payouts.
Car Insurance: Most new-car buyers in India reach the same moment at the showroom. The paperwork is nearly done and the keys are almost in hand. Then the dealer produces a motor insurance policy, already arranged and ready to sign. Buyers are not obliged to take it, but many do, to avoid the effort of sourcing cover elsewhere.
The convenience has a price that rarely appears on the invoice. According to a consultation paper from the Insurance Regulatory and Development Authority of India (IRDAI), the intermediaries who sit at the point of sale earn some of the highest commissions in the industry. The regulator has now proposed measures to bring those payouts down.
Car Insurance: ₹7,050 crore in commissions on ₹29,000 crore of premium
The consultation paper estimates that motor insurance distributors earned roughly ₹7,050 crore in commission in FY2025, against about ₹29,000 crore in motor premium. The average payout rate for the segment was 24%, making motor one of the most commission-heavy lines in Indian insurance.
The paper also shows how far commissions have outpaced premiums. Between FY23 and FY25, motor insurance premiums rose by about 34%, while commissions grew by nearly 259%. For business placed through brokers, the average commission rate rose from 9% to 25% over the same period.
Commissions on third-party motor insurance, which is mandatory, also climbed. They went from 4.3% of premium in FY23 to 22% in FY25.
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The regulator pointed to motor insurance as an example of limited transparency coinciding with high commissions. It noted that the products are simple and that part of the cover, the third-party component, is compulsory.
Car Insurance: Dealers and OEM brokers at the top of the earnings chain
The highest payouts are concentrated where the sale happens. Original Equipment Manufacturer (OEM) brokers and Motor Insurance Service Providers (MISPs), a category that includes motor dealers, together account for about 30% of motor insurance business across new and used vehicles.
On new vehicles, OEM brokers earn an average commission of 27%. MISPs earn 38%. MISPs also earn an average of 12% on policies sold for older vehicles brought to their garages for servicing.
Car Insurance: What IRDAI has proposed
The regulator’s proposals work on two fronts: where motor insurance can be bought, and how much intermediaries can earn from it.
On the first, IRDAI has suggested that motor policies for both new and old vehicles be made available on Market Infrastructure Institution (MII) platforms such as Bima Sugam. The platform is expected to become operational in the next four to six months. For not-for-profit platforms, the paper proposes capping the platform fee at 5% of premium.
Showrooms would have a part to play. Dealers selling new vehicles would have to display the option of buying motor insurance through the MII platform prominently, including a QR code that customers can use to reach it. They would also have to tell new-vehicle buyers that the option exists.
On commissions, the paper proposes a sharp reduction for mandatory third-party cover on new vehicles. Distribution entities would receive no commission on it, and agents would receive 2.5%. Own-damage and other covers would be capped at between 5% and 15%, depending on the distribution channel and the age of the vehicle.
Car Insurance: Still a proposal
The measures are contained in a consultation paper and are not final rules. IRDAI has invited comments and suggestions from stakeholders and will finalise the framework after that process. The final commission limits and the requirements on dealers could differ from what has been proposed.
The consultation paper covers both the cap on commissions and the push to route motor policies through MII platforms such as Bima Sugam, which is expected to become operational in the next four to six months. The regulator will consider the feedback it receives before issuing the final rules, so the commission limits, the platform fee cap and the showroom disclosure requirements may change as a result.
