Explained: Why IRDAI is moving to regulate insurance commissions

India’s insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), is preparing draft regulations to rein in insurance commissions, signalling a sharper regulatory focus on distribution costs across the sector. The move was flagged by Department of Financial Services Secretary M Nagaraju, even as the government seeks to empower IRDAI with stronger oversight tools.

At first glance, the rationale appears straightforward: higher commissions ultimately translate into higher premiums for policyholders. Commissions are a key component of insurers’ expense ratios, and unchecked increases can inflate the cost of insurance products without necessarily improving consumer outcomes.

However, IRDAI’s push is driven by a deeper, data-backed concern—higher commissions are not delivering proportional gains in policy growth or premium expansion.

What the data shows

IRDAI’s FY25 Annual Report offers a revealing snapshot of the disconnect between commissions and business growth.

• Life insurance (industry-wide):
  Commissions paid rose 18% in FY25. Yet, the number of policies declined by around 7.5%, while premium growth was limited to about 7%.
• Private life insurers:
  Commissions surged 39%, but policy growth was just 5% and premium growth around 12%, indicating sharply diminishing returns on higher distributor payouts.
• General insurance (overall):
  Commissions increased 20%, while policy growth stood at 16% and premium growth lagged at roughly 6%.
• PSU general insurers:
  Commissions climbed 27%, but both policy growth and premium growth were subdued at around 5% each.
• Private general insurers:
  Despite a 16% rise in commissions and a healthier 23% growth in policies, premium growth was only about 5%.
• Standalone health insurers:
  Commissions rose 24%, while both policy issuance and premium growth were limited to around 16%.

Why IRDAI is concerned

The consistent theme across segments is that rising commissions are not translating into commensurate business expansion. In several cases, commissions have grown far faster than either policy volumes or premiums. From a regulatory standpoint, this raises two red flags.

First, policyholders may be paying higher premiums without seeing improved coverage, service quality, or product value. Second, insurers’ profitability and long-term sustainability could come under pressure if distribution costs continue to rise faster than revenue.

For IRDAI, the data undermines the argument that higher commissions are necessary to drive penetration or growth. Instead, it suggests inefficiencies in distribution incentives, misaligned sales practices, or excessive competition for agents and intermediaries.

Also Read | Former members back IRDAI move to revisit insurance commission rules

The regulatory objective

By regulating commissions, IRDAI aims to restore balance between customer interest, distributor incentives, and insurer viability. The intent is not merely cost-cutting, but ensuring that commission structures are aligned with genuine growth, persistency, and value creation—rather than volume chasing.

In effect, the regulator is signalling that higher commissions, by themselves, are not a substitute for sustainable insurance expansion. The FY25 numbers make that case unequivocally, and they form the backbone of IRDAI’s rationale for stepping in now.

First Published: 

Dec 31, 2025 5:44 PM

IST