IRDAI to Roll Out Major Insurance Reforms, Launch Bima Sugam Marketplace in 4–6 Months

India’s insurance regulator is preparing for a structural overhaul of the sector. The Insurance Regulatory and Development Authority of India (IRDAI) will introduce a series of reforms over the next four to six months aimed at reducing costs, improving transparency, and enhancing value for policyholders.

The reform package includes revamping distribution and commission structures, launching the long-awaited Bima Sugam insurance marketplace, introducing a digital public infrastructure (DPI) for insurance, and transitioning to Indian Accounting Standards alongside a risk-based capital regime.

Rationalising Distribution and Commission Costs

At the top of IRDAI’s agenda is a sweeping review of distribution and commission structures. In FY25, life and non-life insurers paid nearly ₹1 lakh crore in commissions, prompting concerns from both IRDAI and the Reserve Bank of India over high distribution costs. The Economic Survey 2025–26 also flagged elevated expenses as a key factor affecting affordability.

Currently, insurers spend roughly 30% of premiums on distribution and administration. Of this, 17–18% goes to banks, NBFCs and agents as commissions, while 13–14% covers management costs.

IRDAI plans to shift toward effort-based incentivisation and align commissions with long-term value rather than short-term sales. Seth indicated that mandated products such as third-party motor insurance and renewals should not attract the same acquisition cost as onboarding new customers. The regulator is also reviewing overall Expenses of Management (EoM) ratios to improve operational efficiency and curb mis-selling.

Bima Sugam: A Digital Insurance Marketplace

Another key initiative is the rollout of Bima Sugam, an industry-owned digital marketplace designed to function as a unified portal for insurance comparison and purchase.

The first commercial use case is expected to go live by May 2026. Initially, insurers will list standardised policies, allowing customers to compare premiums and service metrics in a transparent format similar to e-commerce platforms. Over time, the platform may expand to include bundled and customised products.

The move is aimed at improving transparency, increasing competition, and making it easier for customers to identify value-for-money insurance covers.

Building a Digital Public Infrastructure for Insurance

IRDAI is also preparing a discussion paper on establishing a digital public infrastructure (DPI) for the insurance sector. Backed by the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, the proposed framework would create a consent-based registry of policy and claims data.

The DPI would enable faster underwriting, improve fraud detection, and allow seamless portability of records. Seth emphasised that implementation would strictly comply with privacy regulations. Drawing parallels with digital reforms in banking and capital markets, he noted that such infrastructure could extend insurance access to underserved regions while improving customer experience.

Accounting Standards and Risk-Based Capital

From the next financial year, insurers are expected to adopt Indian Accounting Standards, aligning financial reporting with globally recognised norms.

IRDAI is also moving toward a dynamic Risk-Based Capital (RBC) framework, replacing the existing formula-based solvency regime. Two impact studies have been completed, and draft regulations may soon be released for consultation. The objective is to align capital requirements with risk profiles, ensuring policyholder protection while enabling efficient capital deployment.

Read more: SEBI Mandates Exchange Spot Prices for Valuation of Gold and Silver Held by Mutual Funds.

Conclusion

IRDAI’s upcoming reform package signals a decisive shift toward affordability, transparency, and sustainability in India’s insurance sector. By rationalising commissions, digitising distribution, strengthening capital norms, and enhancing data transparency, the regulator aims to balance value for policyholders, shareholders, and the broader economy.

If implemented effectively, these measures could reshape India’s insurance landscape—making products more accessible, improving trust, and laying the groundwork for deeper financial inclusion in the years ahead.

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