RBI Raises Concern Over Commission-Led Costs in Insurance Sector

The Reserve Bank of India (RBI) has drawn attention to rising insurance commissions, stating that higher distribution expenses are being factored into premium pricing.  

In its latest Financial Stability Report, the central bank said this trend could weigh on affordability and limit the spread of insurance coverage. It added that the sector remains stable for now, but cost pressures are becoming more visible. 

Wider Regulatory Concern 

The RBI’s assessment comes after similar observations from the Insurance Regulatory and Development Authority of India and the finance ministry. Regulators have noted that elevated commissions may slow progress on widening insurance access. The issue has gained urgency as authorities work towards expanding coverage over the long term. 

Cost-Led Premium Growth 

The report said premium growth has increasingly relied on distribution-led expansion rather than operating efficiency. Commission expenses have risen across life and non-life insurance segments. The increase has been sharper among private life insurers, where payouts to intermediaries have climbed steadily since FY23. 

Impact on Policy Pricing 

According to the RBI, higher acquisition and distribution costs are eventually reflected in premiums paid by customers. In the life insurance segment, upfront costs have limited the benefits of scale being passed on to policyholders. The report also noted that savings expected from greater use of digital channels have not yet translated into lower overall expenses. 

Public and Private Sector  

Reports suggest that a clear difference in expense patterns was observed between public and private insurers. Public sector life insurers have maintained largely unchanged commission structures despite rising premiums, pointing to tighter expense control.  

Private life insurers, however, have recorded a sharp rise in commission payouts in recent years. In non-life insurance, public insurers show stable commission costs, while private players have reported faster growth in distribution expenses. 

Read More: Life Insurance Penetration Falls for Third Year; Overall Insurance Coverage Stays Flat in FY25! 

Conclusion 

Insurance density rose from $78 in 2020-21 to $97 in 2024-25, showing higher per capita spending on insurance. At the same time, penetration declined as economic growth outpaced premium growth. The RBI said controlling expense levels would be important for improving affordability and supporting insurance coverage. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.   
 
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.