Summary:
IRDAI has proposed new insurance distribution rules covering product-specific commission caps, lower Expense of Management limits, simpler distribution structures and stronger safeguards against mis-selling. The consultation could reshape insurance costs, distributor economics, digital practices and transparency for policyholders and insurers.
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a three-part overhaul of insurance distribution covering product-specific commission caps, a simpler distributor structure and tighter Expense of Management (EoM) limits. The consultation paper, released on September 23, aims to control distribution costs, improve transparency and strengthen safeguards against mis-selling.
The proposed framework comes after a sharp rise in distributor payouts. In the life insurance corporate agency channel, new business premium increased from ₹63,000 crore in FY23 to ₹80,000 crore in FY25, a rise of about 27% in the data shown. Over the same period, distributor remuneration jumped from ₹9,580 crore to ₹21,600 crore, an increase of 125.5%. The maximum commission rate also increased from 34% to 81%, a rise of 138.24%.
IRDAI Insurance Rules: Key Facts
| Key fact | Proposed change |
|---|---|
| Regulator | IRDAI |
| Consultation paper | Recalibrating Economics of Insurance Distribution |
| Released | September 23, 2026 |
| Commission framework | Product/channel/effort-based limits |
| Life EoM | 15% within 2 years; 12.5% within 5 years |
| General insurance EoM | 30% to 20% over 5 years |
| Mis-selling | Stronger suitability and accountability requirements |
| Loan-linked insurance | Compulsory bundling proposed to be prohibited |
| Digital practices | Restrictions on specified dark patterns |
| Public comments | Until October 25, 2026 |
| Current status | Proposal under consultation; not final |
The trend is similar in general insurance. Premium generated through the covered channel increased from ₹74,460 crore to ₹1,01,862 crore, up 37%, while distributor remuneration rose from ₹6,348 crore to ₹17,348 crore, an increase of 173.3%. The commission rate increased from 8.53% to 17.03%, or 99.7%.
What Are the New IRDAI Insurance Distribution Rules?
| Insurance product | Distribution entities | Individual agents |
|---|---|---|
| Pure-term life | Up to 25% | Up to 30% |
| Multi-year renewals | Up to 7.5% | Up to 10% |
| Savings/linked, shorter payment terms | Up to 5% | Up to 6.25% |
| Long-tenure policies | Up to 20% | Up to 25% |
| Health first sale | Up to 15% | Up to 20% |
| Health renewal/porting | Up to 5% | Up to 10% |
Under the proposed structure, commissions would vary according to the product, policy tenure and distribution channel rather than following a broad uniform approach. For individual pure-term life insurance, the proposed cap is 25% for distribution entities and 30% for individual agents.
For multi-year renewals, the proposed limits are 7.5% and 10% respectively. For savings and linked products with premium-payment terms below five years, the proposed caps are 5% and 6.25%. The limits rise progressively for longer tenures, reaching 20% and 25% for policies with terms exceeding 10 years.
For renewal commissions, the proposed cap is 2% for distribution entities and 5% for agents for renewals up to five years, and 3% and 5% beyond five years. For health insurance, individual first-sale commissions would be capped at 15% and 20%, while renewal and porting would carry 5% and 10% limits.
What Is Changing in Expense of Management (EoM) Limits?
Life insurers
- Proposed EoM limit of 15% of GDPI within two years
- Further reduction to 12.5% within five years
General insurers
- Proposed shift from GWP to domestic GDPI
- EoM limit to move from 30% to 20% over five years
IRDAI has said the proposed reduction is intended to lower the overall cost of insurance, potentially expanding the risk pool in general insurance and enhancing returns for policyholders in life savings products.
Lower distribution or management costs do not automatically mean lower premiums or higher policyholder returns. The eventual effect will depend on how insurers adjust pricing, products, commissions and other costs.
Why are these changes important for consumers?
The consultation also targets mis-selling, loan-linked insurance and digital practices such as dark patterns. IRDAI has proposed making suitability an enforceable obligation, documenting customer needs and maintaining an audit trail for specified life insurance sales. It also wants clearer commission disclosures and restrictions on bundling insurance with loans.
The potential consumer benefit is that lower distribution costs could eventually translate into lower premiums, better returns or improved claims payouts, although that outcome would depend on how insurers pass on any savings.
Why did insurance stocks fall after the proposal?
Insurance stocks came under pressure after the consultation paper because the proposed commission ceilings could reduce the economics of some distribution-heavy products. PB Fintech fell 36% on September 24, while other insurers and distributors also witnessed sharp declines.
The proposals are still under consultation, so the final rules and their eventual financial impact may differ from the draft.
What Happens Next?
When Will the New IRDAI Insurance Rules Come Into Effect?
The proposed rules are not yet final. IRDAI's consultation process is currently open for stakeholder comments, with submissions invited until October 25, 2026. Any final framework and implementation timeline will depend on the regulator's subsequent decisions
IRDAI Insurance Distribution Rules FAQs
IRDAI has proposed changes to commissions, EoM limits, distribution structures, mis-selling safeguards, transparency and digital insurance practices.
No. They are part of a consultation proposal and are not final rules. Public comments are invited until October 25, 2026.
IRDAI has proposed reducing the company-level EoM limit for life insurers to 15% of GDPI within two years and 12.5% within five years.
The proposal would shift the benchmark from GWP to domestic GDPI and reduce the limit from 30% to 20% over five years.
Not necessarily. The proposals aim to improve cost efficiency, but whether savings reach policyholders will depend on insurer pricing and implementation.
The proposal seeks to prohibit compulsory bundling of insurance with credit or loans, rather than prohibiting all insurance products associated with loans.
Investors assessed the potential impact of lower commission limits and tighter distribution economics on insurers, brokers, distributors and digital insurance platforms.
