India’s insurance industry could be heading for a significant rethink of how products are sold and, more importantly, how much distributors are paid for selling them, according to a report by Kotak Institutional Equities .
The IRDAI has proposed a new distribution framework that would cap commissions across insurance products and channels, alongside tighter limits on insurers’ expenses. The proposals aim to reduce distribution costs and make insurance products more cost-efficient for customers.
But the impact will not be evenly spread. Kotak Institutional Equities expects insurers to absorb the changes over time, while distributors that have built their businesses around high commissions, particularly NBFCs and large multi-insurer platforms, could face a tougher adjustment.
Why has IRDAI stepped in?
The issue is not simply that insurance commissions are high. It is that payouts have been rising faster than the business they generate.
Across sampled life corporate agents, new business premium increased 1.3 times from Rs 630 billion in FY2023 to Rs800 billion in FY2025. Over the same period, remuneration jumped 2.3 times from Rs96 billion to Rs216 billion, taking the effective payout to 27% of first-year premium. In general insurance, broker-led premium increased 1.4 times, but commissions rose 2.7 times.
IRDAI's proposed answer is a broad reset of the distribution economics.
For life insurers, the regulator has proposed an EoM ceiling of 15% within two years and 12.5% within five years. General insurers would move towards 25% and then 20%. The commission structure would also become more restrictive across products and distribution channels.
The biggest shock comes in credit-linked insurance.
Why NBFCs and PB Fintech are in the line of fire
Credit-protect insurance has historically carried some of the industry's highest payouts. The proposed cap for life insurance packaged with credit is just 2% for single-premium products and 2.5% in the first year for multi-year products, compared with a FY2025 average commission of 22% for credit-life single-premium policies.
That matters for NBFCs because insurance distribution has become a meaningful source of income. Kotak estimates insurance commissions accounted for 3% to 25% of PBT for select NBFCs in FY2026.
PB Fintech faces a different version of the same problem. The proposed caps are lower for distribution entities such as corporate agents, banks and multi-insurer platforms than for individual agents. Health insurance, a key segment for PB Fintech, would see commissions capped at 15% for new business and 5% on renewals for distribution entities, compared with 20% and 10% for agents.
For insurers, however, Kotak expects the disruption to be more manageable. Lower commissions could initially weigh on volumes, particularly in savings and credit-protect products, but insurers could retain part of the savings or redirect distribution towards individual protection.
SBI Life , which has one of the lowest overall commission rates among peers, is described as being better placed for the transition. Health insurers could also benefit if lower commissions translate into lower premiums and stronger demand. ICICI Lombard , meanwhile, could get some relief from lower motor commissions as it deals with claims pressure.
One important caveat, these are still consultation proposals, not final regulations. The framework was released on September 23, with comments invited until October 25.