The Insurance Regulatory and Development Authority of India (IRDAI) is set to release a discussion paper on insurance distribution reforms, with policyholder protection forming the cornerstone of the proposed framework, according to comments by Swaminathan S. Iyer, Member (Life), reported by ET Now.
The proposed reforms are expected to cover key aspects of distribution, including persistency, distributor incentives, customer choice, bancassurance partnerships and the broader regulatory framework. According to ET Now, the final contours of the reforms will be shaped after consultations with industry stakeholders.
Policyholder protection to drive reforms
Speaking to ET Now, Iyer said the regulator’s approach is to ensure that customers can make informed decisions in a competitive market, while strengthening safeguards against mis-selling.
He noted that mis-selling is not confined to banks and is prevalent across multiple insurance distribution channels. As a result, the regulator’s focus is expected to be on improving customer outcomes rather than targeting any single distribution model.
The discussion paper is likely to outline principles that strike a balance between market development and consumer protection, instead of imposing rigid rules on insurers and distributors.
Focus on persistency and customer retention
A major area of focus is expected to be persistency, a key metric that measures how long policyholders continue paying and keep their insurance policies active.
According to Iyer, improving persistency requires industry-wide efforts to bring customers who have discontinued their policies back into the insurance ecosystem.
Several insurers have already begun linking distributor payouts to persistency instead of relying solely on new business volumes. ET Now reported that the regulator is likely to examine persistency more closely while framing future distribution regulations.
The proposed framework may also differentiate distribution practices based on factors such as product complexity, policy tenure and customer profile.
Market-driven partnerships, not rigid rules
The regulator also indicated that it does not favour an overly prescriptive approach to regulating commissions or insurance distribution.
Instead, market forces should determine bancassurance partnerships between banks and insurers, Iyer said, suggesting that the regulator is inclined towards a principles-based framework rather than detailed rule-making.
According to ET Now, comprehensive distribution reforms remain a work in progress, and the timeline for finalising them will depend on feedback received during the consultation process.
The upcoming discussion paper is expected to provide insurers, distributors and other stakeholders with an opportunity to comment before the regulator finalises the new distribution framework.
The reforms come as the insurance sector undergoes rapid changes driven by digital distribution, evolving sales models and the regulator’s broader objective of expanding while improving customer outcomes.