Lowdown: IRDAI consultation paper on insurance distribution reforms

IRDAI wants insurance to become a product customers can discover, compare, verify and buy digitally, rather than one primarily pushed through intermediaries. At the centre is a regulator-owned Public Insurance Registry (PIR), which would underpin customer-facing platforms such as Bima Sugam and create a digital layer for identity, verification, market information and accountability. The Insurance Regulatory and Development Authority of India has released its “Recalibrating Economics of Insurance Distribution” consultation paper in two parts. Part 1 sets out the proposed reforms, while Part 2 provides the distribution-cost and commission analysis behind them. IRDAI has invited comments until 25 October 2026.

PIR would create a digital infrastructure layer for insurance: IRDAI proposes the PIR as a regulator-promoted Market Infrastructure Institution and a national, population-scale, interoperable and non-exclusionary Digital Public Infrastructure for insurance. It would sit behind customer-facing MIIs such as Bima Sugam, allowing insurers, distributors and other market participants to discover, verify and exchange information in a standardised way.

IRDAI identifies 59 potential user stories for PIR. These include:

“Know Your Insurer” and “Know Your Distributor” functions;
Publishing insurer and distributor performance;
Enabling customers to compare products, insurers and intermediaries;
Supporting a sector-wide functional identity system for insurance salespeople;
Attributing individual policies to the salesperson who sold them.

The proposal would transform the Insurance Information Bureau (IIB) into this infrastructure. Insurers and distributors would have to maintain records of commission paid or received on every policy, which could be accessed by IIB/PIR.

IRDAI wants insurer-backed digital marketplaces such as Bima Sugam: The PIR would support customer-facing MIIs, with Bima Sugam as the first major example. IRDAI proposes that insurer-promoted MIIs be not-for-profit companies, with at least 11 insurers coming together to establish one.

The governance structure would include:

Once operational, no shareholder insurer could hold 10% or more of the shares or voting rights.
A lead promoter could hold up to 20% initially.
That holding would have to fall to 15% within five years and below 10% within seven years.
MIIs could receive “preferred distribution status”, but would have to use transparent fees substantially below current commission rates.
The platforms should allow insurers to compete on product features, pricing, performance, claims settlement and grievance redressal.

IRDAI says all insurers except three are shareholders in Bima Sugam India Federation. Its reform-assessment framework says Bima Sugam is expected to become operational in four to six months. The Authority also wants more such MIIs, rather than treating insurance distribution as a single-platform market.

Commission caps return, alongside a five-year EoM reset: The biggest change to the economics of distribution is IRDAI’s proposal to bring back prescriptive commission limits after the 2023 removal of product-level caps. The new limits would vary according to product complexity, distribution architecture, premium type and selling effort. IRDAI also proposes that all forms of distributor remuneration count towards the cap, including rewards, incentives, selling-expense reimbursements, brand payments to related parties and non-cash benefits.

Key proposed general-insurance caps include:

New-vehicle motor third-party: nil for IDEs; 2.5% for agents.
Individual health, first sale: 15% for IDEs; 20% for agents.
Retail property, first sale: 15% for IDEs; 20% for agents.
Property and engineering risks above Rs 2,500 crore: 5% for IDEs; 5.5% for agents.

For life insurance, first-year commission on individual non-linked and linked products would range from 5%-20% for IDEs and 6.25%-25% for agents, depending on premium-payment term. Pure-term multi-year products could attract 25%/30%.

Separately, life insurers would move to an EoM of 15% of premium in two years and 12.5% in five years, while general insurers would move to 25% and 20%.

How commission calculations would work: IRDAI proposes calculating general-insurance EoM against Gross Direct Premium Income (GDPI), rather than Gross Written Premium (GWP). Gross commissions would continue to count, while inward reinsurance would effectively be removed from the calculation to address double-counting. Payments received from reinsurers, other than claims settlement, would be treated as reinsurance commission and could not be netted against commission or operating expenses.

Other proposed changes include:

The regulatory fee charged by IRDAI would fall from 0.05% to 0.04% of premium, capped at Rs 20 crore.
For PMFBY, only one-third of gross premium would qualify as GDPI for EoM purposes.
Cost audits would become mandatory for all insurers.
IDEs with insurance-related revenue above Rs 100 crore would also need annual cost audits.
IDEs with insurance-related revenue above Rs 50 crore would have to publish revenue, expenses, related-party payments and PAT on their websites.

Insurers missing EoM targets could face restrictions on new products, dividends and, in extreme cases, new business through the channel responsible for the excess.

Distribution would be consolidated into three categories, with a digital identity layer: IRDAI proposes replacing the current fragmented structure with Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and MIIs. Corporate agents, brokers, IMFs, web aggregators, OEM brokers and several other categories would be folded into IDEs, while agents, PoSPs and other salespeople would become IDPs.

Entry requirements would fall:

IDEs would require initial capital of Rs 10 lakh.
They would also need a bank deposit equal to 0.1% of previous-year commission and insurance-related income, subject to a Rs 10 lakh minimum and Rs 10 crore maximum.
IDEs would need positive net worth.
MII capital would be Rs 25 crore.
Registration would become permanent.
The proposed application fee is Rs 10,000.
The annual fee would be the higher of Rs 10,000 or 0.04% of receipts.

The digital layer is more significant. IDEs would onboard IDPs on an industry-wide platform, obtain unique functional identities, assign one IDP to each physical selling outlet and tag every policy to the salesperson. A central identity mechanism could sit on one of the MIIs with PIR as the backend.

IDPs would provide Aadhaar and PAN, while certain higher-income agents and PoSPs would consent to PIR obtaining GST details from GSTN.

Online insurance purchases would get stronger disclosure and payment safeguards: The regulator wants insurers to publish product features, pricing, performance and quality without first collecting personal information. Customers should not have to provide their name, phone number, email or identification merely to access product information. The Authority proposes explicitly prohibiting such dark patterns under insurance regulations.

The proposal would also introduce:

Standard one-page product information sheets and FAQs prepared by the Life and General Insurance Councils.
Standardised performance measures for claims, grievances and service quality.
Publication of Board-approved commission policies, with access no more than one click from the website landing page.
Direct, verified customer-insurer connections before policy issuance.

Authentication could use OTP, Aadhaar-based face authentication, DoT verification of name and number, and number deduplication.

Money would also bypass intermediaries. Premiums should move directly through UPI or directly from a customer’s card or bank account to the insurer, with third-party payments prohibited. Claim payments should go to verified policyholder or nominee accounts. Insurer-reinsurer funds should also move directly rather than through broker accounts.

Banks and NBFCs would face new bundling and mis-selling controls: Banks and NBFCs registered as IDEs would be prohibited from compulsorily bundling insurance with loans or other products. IRDAI would still allow certain packages where customers receive a demonstrable benefit. For example, where insurance enables a lower loan rate, customers must see the interest rate with and without insurance, remain free to choose another insurer and pay the premium separately rather than from the loan.

IRDAI also proposes suitability as an enforceable obligation. For life sales above a defined ticket size, insurers and IDEs would need a documented needs and suitability assessment and audit trail.

The paper identifies the following as examples of mis-selling:

Selling regular-premium policies as single-premium products;
Presenting insurance as fixed deposits;
Selling ULIPs without explaining risks;
Inducing customers to replace existing policies through misleading return claims.

All direct and indirect remuneration would count as commission, while volume- or reward-linked incentives for bank and NBFC staff selling insurance would be prohibited.

Mis-selling could lead to:

Commission claw-back;
Publication of the salesperson’s functional identity and mis-selling record through PIR;
Greater accountability for individual salespeople rather than only the intermediary.

Digital push for motor insurance: Motor insurance is a particular target. IRDAI says OEM brokers and MISPs hold 30% of combined new and old vehicle business, generated Rs 29,000 crore in premiums in FY25 and received almost Rs 7,050 crore in commission. Between FY23 and FY25, motor premium grew about 34%, while motor commission grew about 259%. Part 2 records average motor commissions of 26% and maximum commissions of 75% across its dataset.

IRDAI would put motor policies for new and used vehicles on MIIs such as Bima Sugam, with a proposed 5% ceiling on MII platform fees.

Motor dealers would have to:

Register as IDEs if they meet the proposed entity structure;
Otherwise operate as PoSPs or associates;
Display the MII option and QR code;
Inform customers about the MII option;
Share the customer’s mobile number with PIR;
Allow PIR to check the number against VAHAN and send a post-event compliance message.

Dealers could not deny cashless repairs because a policy was bought elsewhere.

The paper also expands distribution: hospitals could become IDEs for health insurance, non-dealer garages could sell motor insurance as insurer associates, and insurers could distribute products of group insurers in non-competing segments through branch employees.

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