IRDAI Proposes Reforms to Insurance Distribution Framework

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a fresh set of changes to the way insurance distribution costs are managed, as per news reports. Its two-part consultation paper, titled Recalibrating Economics of Insurance Distribution, looks at commissions, payouts, intermediary structures and digital distribution. 

The paper comes as distributor payments have grown much faster than business volumes in several areas. IRDAI has also raised concerns around bancassurance and loan-linked insurance products. 

Distributor Payouts Rise Sharply 

Between FY23 and FY25, new business premium generated through a sample of corporate agents rose 28% from ₹63,000 crore to ₹80,000 crore. Distributor remuneration, however, increased 125%, moving from ₹9,580 crore to ₹21,600 crore. 

In general insurance, broker commissions climbed 173% to ₹17,348 crore during the same period, while routed premiums increased 37%. 

Bancassurance Comes Under Focus 

The paper highlights wide differences in payouts through bank tie-ups. Multiple-tie-up arrangements had an average total payout of 33%, with some reaching 72%, compared with 13% for single-tie-up arrangements. 

Group Credit Life payouts also rose sharply, reaching as high as 45% in FY25 from around 5% in FY23. 

Five-Year EoM Transition Proposed 

IRDAI has proposed a five-year glide path for Expense of Management limits. 

For life insurers, the proposal moves towards a company-level EoM cap of 12.5% of Gross Direct Premium Income (GDPI). For general insurers, the proposed company-level limit would move from 30% of GWP to 20% of GDPI. 

The paper also proposes using GDPI for EoM calculations and annual cost audits for insurers and large intermediaries. 

Intermediary Structure May Be Simplified 

IRDAI has proposed three broad intermediary structures: Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions. 

Intermediaries would also be allowed to offer certain non-insurance financial and non-financial services. 

Bima Sugam and PIR Proposed 

IRDAI is also pushing digital alternatives through Bima Sugam, which the paper says is expected to go live within four to six months.  

A regulator-owned Public Insurance Registry has also been proposed. 

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Conclusion 

The consultation paper puts insurance distribution costs and intermediary models under review, with IRDAI proposing changes across commissions, EoM limits and digital infrastructure. The proposals are currently open for comments from industry stakeholders, policyholders and distribution partners. 

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