India’s insurance regulator is planning a significant overhaul of how insurance distributors and agents are paid, in an effort to tackle the persistent problem of mis-selling that has long plagued the sector, reported news agency Reuters.
The report cited two sources with knowledge of ongoing discussions between the regulator and the industry, that the Regulatory and Development Authority of India (IRDAI) is proposing to to a model where commissions are paid out over the life of a policy.
A draft framework could be circulated within the next four to six weeks, according to the report.
At the heart of the issue is a simple but damaging incentive.
Under the existing framework, distributors can earn commissions of up to 40 per cent of premiums on some life and products, with a significant portion of that paid upfront.
That structure encourages agents and bancassurance partners to prioritise sales volumes over whether a product is actually suitable for a customer, resulting in mis-selling and customers being pushed into buying policies they do not need or cannot afford.
Moving to a model where commissions are spread across the life of a policy would align India with major global markets including the United States, the United Kingdom and Europe.
Beyond simply staggering payments, IRDAI is also considering a new pricing model that ties commission rates to the effort involved in selling and servicing a policy.
Under this model, an agent who provides face-to-face advisory services, assists with paperwork and helps manage claims would earn a higher commission than a bank that sells a policy to a customer as an add-on product during a loan transaction.
Commissions could also be capped depending on the product, its complexity and the length of the policy. Disclosure requirements for agents, brokers and other distributors are also likely to be tightened, bringing greater transparency to how commission and remuneration structures work across the industry.
IRDAI chairman Ajay Seth said last week that the regulator was working on a distribution reform consultation paper that could be issued by the end of July.
India is one of Asia’s largest insurance markets, with gross premium collections exceeding Rs 11.9 lakh crore annually.
Yet insurance penetration stood at just 3.7 per cent of GDP in 2024, well below the global average of around 7.2 per cent estimated by Allianz.
The government has taken steps to address this gap. Last year, it cut the tax on individual health and premiums to zero from 18 per cent to make policies more affordable. It also opened the sector to 100 per cent foreign direct investment, drawing fresh interest from overseas insurers.
India has more than 60 insurers. Major domestic players include the state-owned Life Insurance Corporation, ICICI Prudential and HDFC Life. Foreign firms including Prudential, Sun Life Financial and AIG are also active in the market.
This development does not come as a surprise to readers of India Today.
This publication has been tracking the for more than a year, covering individual cases, systemic failures and regulatory gaps across multiple stories and series aimed at drawing attention to the
Our reporting has documented how bank relationship managers routinely pushed unsuitable insurance products on customers who came in for fixed deposits or loans, how senior citizens were sold complex insurance-cum-investment products carrying high mortality charges, and how commission-driven incentives created a system where the agent’s earnings consistently took priority over the customer’s actual financial needs.
IRDAI’s move, if it goes through, would address the structural incentive at the root of the problem that India Today has repeatedly flagged: so long as agents and banks earn most of their commission at the point of sale, the financial incentive to sell fast will always outweigh the incentive to sell right.