The Insurance Regulatory and Development Authority of India (IRDAI) will roll out half a dozen reforms over the next 4–6 months, including overhauling distribution and cost structures, launching a much-anticipated insurance e-marketplace, and introducing a digital public stack for the sector, chairman Ajay Seth told FE. These steps aim to make insurance covers more affordable and ensure value for money for the public, he added.
In his first interview after taking charge as insurance regulator in September 2025, Seth said a sweeping revamp of distribution and commission cost structures is at the top of IRDAI’s agenda. Life and non-life insurers paid a whopping Rs 1 lakh crore in commissions in FY25, prompting the IRDAI and the Reserve Bank of India to flag “high distribution costs.” The Economic Survey 2025–26 also noted that elevated distribution expenses affect insurance affordability.
Rationalising Commission Burden
IRDAI plans to rationalise sales channels while pushing insurers to lower overall expenses of management (EoM) ratios, not just commissions. “We are considering realignment of distribution channels with a stronger emphasis on effort-based incentivisation,” Seth said, adding the regulator is aligning commissions with long-term value rather than short-term sales.
“There is no reason why the cost of acquisition of mandated insurance products, such as third-party motor insurance, or continuing coverage like renewals, should equal the cost of acquiring a customer who is new to insurance,” he said, stressing that incentives must reflect effort, complexity and long-term value creation.
Currently, insurers spend about 30% of premiums on distribution and administration, with 17-18% paid to banks, NBFCs and agents. The remaining 13-14% covers management costs, underscoring the need for overall efficiency.
While staggering commissions instead of front-loading could curb mis-selling and reduce upfront costs, Seth said any change must be evaluated carefully across channels to ensure stability, fairness and sustainability. The regulator will also review how insurers service policies, manage risk pools and run backend operations, noting that lowering systemic costs can make products more affordable, improve value for policyholders and strengthen insurers’ sustainability.
Bima Sugam and DPI
A second major initiative is the launch of Bima Sugam, an industry-owned digital marketplace designed as a common portal where customers can compare insurance products by price and service metrics. “The first commercial use case is expected to go live soon (May 2026), which will be a significant milestone,” he said. Insurers will initially offer standard policies so customers can compare premiums and service quality before buying, similar to e-commerce platforms. The portal could eventually host a wider range of products, including bundled policies, once standardisation and adoption improve.
The authority is also preparing a discussion paper on a digital public infrastructure (DPI) for insurance. The framework would create a consent-based public registry of policy and claims data, enabling faster underwriting, better fraud detection and seamless portability of records.
“The recently enacted Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, has provided a legal anchor for that kind of a DPI,” Seth said, adding implementation will comply strictly with privacy law to improve efficiency in risk assessment. He noted similar digital systems in banking and capital markets have boosted efficiency and could help extend insurance coverage to underserved regions while improving customer experience.
Another reform priority is the adoption of Indian Accounting Standards for insurers from the next financial year, aligning reporting with globally recognised norms comparable to international standards. Another pillar is a dynamic Risk-Based Capital framework that replaces the current formula-based solvency regime. Two impact studies are complete and draft regulations may soon be released for consultation.
“There has to be value for all – value for policyholders, value for shareholders and value for the economy,” Seth said, adding that aligning capital with risk profiles will protect policyholders, ensure solvency and allow efficient capital deployment.
The regulator also plans greater transparency by placing more product, returns, claims and settlement data in the public domain and deepening stakeholder consultations before issuing rules to provide certainty for insurers and build trust among policyholders.
