IRDAI proposes phased cuts to insurers' distribution cost limits
IRDAI’s September 23 consultation proposes phased cuts to insurers’ management and distribution expense limits, plus commission and sales-practice changes. For life insurers, one company-level limit of 15% of gross direct premium income would apply within two years, falling to 12.5% within five years. These are proposals, not binding rules. India already permits up to 100% foreign ownership of insurers.
Syllabus: GS3 · Indian Economy & Growth; Prelims · Current Affairs & IR; GS3 · Liberalisation & Industry
Why it matters
A family buying a savings policy at a bank branch pays the seller’s commission inside its premium, and IRDAI says such buyers have little visibility of the amount. IRDAI’s data show such pay-outs outrunning sales: through corporate agents, life insurers’ new premium grew 28% between FY23 and FY25 while distributor pay-outs grew 125%. The regulator argues that lower expense limits would widen the risk pool in general insurance and raise returns on life savings policies, and that disclosure would show buyers what selling costs. Insurers would have five years to adjust. Insurance penetration has stayed at 3.7% of GDP, about half the world’s 7.3%, so the test is whether cheaper selling brings in new policyholders.
Prelims pointers
- IRDAI: statutory insurance regulator under the Insurance Regulatory and Development Authority Act, 1999; a consultation paper invites comments and binds no one.
- Expenses of management (EoM): commissions plus other operating expenses as a percentage of premium; the 2023 framework set one entity-level limit in place of commission caps.
- Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025: amends the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the IRDA Act, 1999.
- FDI in insurance companies: 100% allowed under the automatic route since February 2026; for Life Insurance Corporation of India, only 20% is automatic.
- Bima Sugam: a digital, pull-based Market Infrastructure Institution for insurance, being built by the Bima Sugam India Federation, in which all but three insurers hold shares.
- Bancassurance: banks selling insurance as corporate agents; a corporate agent may tie up with up to nine life, nine general and nine health insurers.
- Insurance penetration is premium as a share of GDP; insurance density is premium per person (India: USD 97 in 2024-25).
Practise a UPSC-style question
Consider the following statements regarding IRDAI's consultation paper on insurance distribution:
1. It proposes a phased reduction in expenses of management limits.
2. It proposes a complete ban on bancassurance.
3. For general insurers, the benchmark would shift from gross written premium to domestic GDPI.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Show the answer
Answer: (c) 1 and 3 only
1 is correct: it proposes expenses of management limits that are cut every year from FY2027-28. 2 is incorrect: the paper does not ban bancassurance; it proposes curbs on how it is sold, such as barring compulsory bundling and volume- or reward-linked incentives for bank and NBFC staff. 3 is correct: general insurers' limit would be measured against domestic gross direct premium income instead of gross written premium.
More from the 30 September 2026 edition
- Cabinet approves Green Energy Corridor Phase-III for intra-State lines and batteries Economy
- CDSCO warns against unsupervised use of painkillers and antibiotics Sci-Tech
- Centre notifies CAFE-III fuel-efficiency norms for passenger vehicles from 2027 Environment
- India proposes AIIB support for MSME technology adoption and skills Economy
- NGT orders joint panel to inspect encroachments at Sambhar Lake Environment
- Railways launches first LNG-diesel dual-fuel DEMU train from Sabarmati Sci-Tech