India’s proposed insurance commission reforms have triggered a sharp debate over the future of insurance distribution, market growth and financial inclusion. While the market reaction exposed the vulnerability of businesses built around high distribution payouts, the larger question remains: will tighter commission limits weaken insurance penetration or help create a more transparent, customer-centric industry?
In Part 1 of this analysis, we examined the regulatory concerns, rising distribution costs and business practices that prompted the Insurance Regulatory and Development Authority of India (IRDAI) to propose a new framework. Part 2 examines the market’s response, the concerns raised by brokers and insurers, and the potential consequences for companies across the insurance value chain.
The international experience offers important lessons. From the United States and the United Kingdom to Singapore, the European Union, Japan and China, different regulatory approaches reveal how countries have addressed excessive commissions, conflicts of interest and consumer protection. These examples also challenge the argument that controlling distribution costs necessarily stifles market growth.
The central issue is not simply how much insurers pay intermediaries, but what those payments incentivise. This analysis assesses the arguments for and against the proposed reforms and outlines a way forward centred on transparency, outcome-linked remuneration, consumer protection and sustainable expansion.
Written by IAAS officer and former Director General, CAG of India, P. Sesh Kumar, this article examines whether India’s insurance reforms can shift the industry’s focus from distributor revenues to the real objective of insurance: protecting more people through affordable cover and reliable claims settlement.
The Market’s Verdict: Panic, Then Parsing
The stock market priced the paper within hours, and it priced it as an attack on distributors rather than on insurance. On 24 September 2026 PB Fintech, the parent of Policybazaar, fell 36 per cent to close at Rs 1,207.20. Turtlemint hit its 20 per cent lower circuit. Max Financial Services lost 9.8 per cent, HDFC Life 6.2 per cent and ICICI Prudential Life 4.1 per cent, while SBI Life and LIC barely moved and ICICI Lombard rose 5.1 per cent.
A Reuters figure cited in secondary coverage put the market-capitalisation loss at PB Fintech above Rs 31,400 crore; this is single-source. Lenders were hit too. One analyst estimate cited after the paper put insurance commission at about 26 per cent of L&T Finance’s FY26 profit before tax and 38.4 per cent of Piramal Finance’s FY25 profit before tax. These are analyst estimates, not company disclosures.
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The sell-side quickly separated victims from beneficiaries. Jefferies estimated that every 10 per cent cut in new-business commission rates could cut earnings at PB Fintech and Turtlemint by 10 to 12 per cent. It called any correction “an opportunity to Buy SBI Life, Star Health and ICICIGI”, citing limited risk, share-gain opportunities and room to expand margins. Bernstein kept an outperform rating on PB Fintech but cut its target price to Rs 1,085. Emkay Global warned that “the drastic cut in distribution commission would also make insurance distribution an unviable business and an unattractive vocation”, which could “severely backfire” on “Insurance for All by 2047”.
The distributors’ response has been vocal. PB Fintech’s group CEO, Yashish Dahiya, told analysts the caps could erase about 30 per cent of revenue. He expects a 33 to 40 per cent fall in non-life revenue if general insurance commissions fall about 60 per cent. He said the company may consider manufacturing insurance itself, along with reinsurance and managing-general-agent business. He also landed the sharpest critique of the old regime: “if we had created bad quality business or good quality business, if we’re going to get paid exactly the same for both, to an extent, the joke is on us.”
The Insurance Brokers Association of India (IBAI) represents 798 brokers. It urged IRDAI to retain the 2023 EoM framework, citing IRDAI’s own figures that general insurers’ EoM fell from 28.2 per cent of premium in FY23 to 26.5 per cent in FY25 while premium grew about 13 per cent a year. It warned that the paper “in the existing format will make it difficult to reach the customer and making Insurance for All by 2047 reality.”
Insurers have been more emollient than brokers. At an informal meeting with the chairman in Mumbai, executives of selected life, general and health insurers sought “a gradual reduction in commissions, differentiated EoM limits, and relaxation” of the bundling curbs. The chief executives of SBI Life, Bharti Life and HDFC Ergo “broadly welcomed” the overhaul while asking for a glide path; one estimated that companies may have to rework 30 to 40 per cent of their processes. There is no formal public statement from the General Insurance Council or the Life Insurance Council up to 3 October 2026. Their positions should be read through the individual CEOs’ remarks for now.
Seth has said the paper “is not directed at any particular company or business model”. In a television interview reported by Moneylife, which is a single secondary source, he cited segment commission rates rising from about 8 to 24 per cent and from 6–7 to 38 per cent, called early feedback “supportive”, and fixed a CEO meeting for 5 October. One press report attributed to him an effective date of 1 January or 1 April 2027 for the new framework. The paper itself sets no start date for the caps, so that date should be treated as provisional.
The World Beyond: Six Mirrors for India
United States: disclosure, scandal and the loss-ratio floor
America regulates commission state by state, and mostly through disclosure rather than price. The National Association of Insurance Commissioners’ producer compensation disclosure model asks producers to tell clients how they are paid when they receive fees from both sides. The decisive moment came in October 2004, when New York Attorney General Eliot Spitzer sued Marsh & McLennan. He alleged bid-rigging and the steering of clients to insurers that paid the richest “contingent commissions”; his complaint put Marsh’s 2003 contingent commissions at approximately USD800 million, and Marsh itself disclosed USD845 million, 12 per cent of its USD6.9 billion risk and insurance services revenue. Marsh settled in January 2005 for an USD850 million restitution fund and stopped accepting contingent commissions. Aon paid USD190 million, Willis USD50 million and Zurich USD153 million. In health, the Affordable Care Act imposed a medical loss ratio requiring insurers to spend at least 80 per cent of premium (85 per cent for large groups) on care and quality improvement. That leaves 20 or 15 per cent for administration, marketing, broker pay and profit, and any shortfall is refunded. Rebates were USD958 million in 2024 and USD1.6 billion in 2025, and KFF estimates USD759 million for 2026. Did any of this kill growth? The US remains the world’s largest insurance market. Its property and casualty industry posted a 92.9 per cent combined ratio in 2025, improved from 96.6 per cent in 2024, according to Verisk and the APCIA, with AM Best’s full-year review in agreement. The American lesson is that a ceiling on non-claims spending in health coexisted with a growing market, and that hidden broker incentives became a scandal precisely because they were hidden.
United Kingdom: from PPI to the Consumer Duty
Britain is the cautionary tale and the reformed sinner. Payment protection insurance (PPI) was sold with loans by banks that kept most of the premium as commission. The Plevin case revealed commission of over 71 per cent, and the FCA’s redress rules treated commission above 50 per cent as presumptively unfair. By the time complaints closed, GBP 38.3 billion had been repaid, the largest consumer redress scheme in British history.
The Retail Distribution Review (RDR) of 2013 banned commission on investment advice. The FCA’s general insurance pricing practices rules of 2022 ended “price-walking” of loyal renewal customers, and the Consumer Duty of July 2023 required firms to prove fair value. The FCA’s value measures data then caught GAP insurance. In 2022 only 6 per cent of GAP premiums were paid out in claims, some firms paid up to 70 per cent of premium in commission, and more than 2.4 million policies were in force. In February 2024 the FCA got firms to pause sales. In May 2024 it let some resume, but only with “materially lower levels of commission”. The industry disputed the 6 per cent figure as a first-year artefact, and that dispute is worth noting. But the method is the point: publish claims ratios by product, and let sunlight discipline commissions. Critics of the RDR note an “advice gap” for less wealthy savers. Yet the UK general insurance market did not collapse when price-walking ended or GAP commissions were cut. It repriced.
Singapore: engineering incentives rather than banning them
Singapore’s Financial Advisory Industry Review (FAIR) is the most elegant template for India, because it re-engineered commission rather than abolishing it. From 2015 every retail life insurer had to offer commission-free Direct Purchase Insurance, with sums assured capped at S$400,000, and compare.FIRST provided an online aggregator for price comparison. The Balanced Scorecard framework took legal effect in January 2016. It ties advisers’ and supervisors’ variable pay to non-sales measures such as fact-finding, suitability and complaints, so a bad audit grade costs real money. Commission spreading rules cap first-year commission at 55 per cent of total commission and spread the rest over at least five or six years. MAS has reprimanded institutions for breaching the scorecard and spreading rules. Singapore remains one of Asia’s most deeply insured markets. Its lesson for India is that the timing and conditions of pay matter as much as the amount.
European Union: the ban that wasn’t
Europe’s Insurance Distribution Directive (2016/97) imposes conflict-of-interest and inducement rules, and requires that remuneration not impair the duty to act in the customer’s best interest. In May 2023 the Commission’s Retail Investment Strategy proposed a ban on inducements for execution-only sales. That proposal was the most politically contested element in negotiations. The political agreement of 18 December 2025 dropped the ban in favour of a stricter inducement test, separate disclosure of inducement costs and value-for-money benchmarks, while leaving member states free to ban inducements nationally, as the Netherlands and Denmark had done for certain products.
For India, EIOPA’s work is more pointed than the legislative saga. Its 2022 thematic review of credit protection insurance sold through banks found that 83 per cent of banks tied the cover to their credit product. It warned that high commissions “cannot be substantiated by the level of costs borne” and threatened supervisory action. A 2024 follow-up survey of 118 undertakings found improvements in claims ratios and denied-claims ratios in some markets within a year. That describes India’s NBFC credit-life channel almost exactly.
Japan: when cosiness becomes a cartel
Japan shows what happens when distribution relationships harden into collusion. In December 2023 the Financial Services Agency (FSA) issued business improvement orders to Tokio Marine & Nichido, Sompo Japan, Mitsui Sumitomo and Aioi Nissay Dowa for fixing premiums for corporate clients. Their three parent groups, Tokio Marine, MS&AD and Sompo, account for around 90 per cent of a market worth roughly JY9 trillion, and Finance Minister Shunichi Suzuki called the conduct “widespread, repeated, and continuous”. The Japan Fair Trade Commission followed with cease-and-desist and surcharge orders in October 2024. The insurers penalised 132 officials and promised to unwind cross-shareholdings in client companies. Separately, the Bigmotor used-car dealer was found to have inflated repair claims, and Sompo Japan was accused of overlooking the fraud to keep the dealer’s insurance business.
The Diet amended the Insurance Business Act in May 2025, and the amendment took effect in June 2026. It tightened oversight of large multi-insurer agents, required conflict-of-interest systems at agents that also profit from repair work, and, through supervisory guidelines of August 2025, curbed “excessive convenience” or favours from insurers to agents. The FSA has said that commission levels, sales quotas or perks cannot serve as the basis for recommending a product. The parallel with India’s dealer-and-OEM motor channel, where the seller of the car, the seller of the cover and the repairer of the damage can be the same entity, is uncomfortable and exact.
China: the hardest cap, and the dip that recovered
China is the industry’s favourite exhibit for the claim that caps kill growth, and on inspection it supports the opposite conclusion. The 2020 comprehensive motor reform cut the expense loading ceiling from 35 to 25 per cent and raised the target loss ratio to 75 per cent. Average car insurance premiums fell 21 per cent by mid-2022, according to the then regulator. Swiss Re records that motor premiums stayed flat in 2020 and fell 5.7 per cent in 2021. The 2021 combined ratio of 101 per cent was, in Swiss Re’s words, “an underwriting loss for the first time since 2015”. Premiums then grew at a compound annual rate of 5.5 per cent from 2022 to 2024, in line with 5.2 per cent annual growth in the vehicle fleet, at a combined ratio averaging 98.1 per cent.
From January 2023 the National Financial Regulatory Administration (NFRA) applied “unified reporting and execution”, requiring insurers to pay distributors only what their filed pricing assumptions allowed. It began with bancassurance life and has since been proposed for non-motor property and casualty lines. Caixin, in an AI-assisted summary that should be treated as indicative rather than definitive, reported commission cuts of about 30 per cent and more than 120 billion yuan of cost savings in 2024. It also reported a drop in banks’ fee income from insurance. Industry premium still rose 9.1 per cent in 2023. China remains the world’s second-largest market, with about USD792 billion of premiums. Growth slowed, but because of interest rates, demographics and the property cycle, not because commission was capped.
The comparative ledger
Let us put the six side by side. The country with the hardest caps, China, saw a one-year dip and then a recovery. The country with the most aggressive disclosure regime, the UK, kept its general insurance market but lost its worst products. Singapore kept commission but made it conditional, and kept its depth. The US capped non-claims spending in health and stayed the world’s largest market. The EU flinched from a ban but sharpened value-for-money tests. Japan learned that cosy distribution can end in cartels and fraud. No jurisdiction offers evidence that disciplining distribution costs, by itself, permanently stunted insurance growth. Several offer evidence that undisciplined distribution ended in scandal, redress and lost trust, which is the real enemy of penetration.
The Central Question: Will It Kill Growth?
The case for the prosecution, steel-manned
The industry’s argument deserves its strongest form. India is under-insured in a way no advanced market is. Non-life penetration is 1 per cent and has not moved in years. Demand does not create itself, and commission is the only scalable way to pay an army of agents, PoSPs and bank staff to create it. Small and new insurers, without brands or branch networks, have no way to win share except to pay more. The paper’s own data shows sub-scale insurers with expense ratios above 50 per cent, so a 20 per cent ceiling will force some to shrink or sell. Rural reach costs more per rupee of premium than urban reach. A company-level expense cap therefore penalises exactly the small-ticket, under-served business the regulator says it wants, a point Khaitan & Co makes with force. The reforms also ask distributors to do more needs analysis, suitability documentation, verified customer contact and servicing while paying them less. The predictable result is less advice, not better advice. Britain’s RDR created an advice gap for ordinary savers. China’s reforms coincided with slowing premiums. And Bima Sugam, the MII on which the “pull” model depends, is not yet fully operational, so caps could arrive before the alternative channel does. Finally, IRDAI itself concedes that part of the post-2023 commission surge was disguised payouts being reclassified into the commission line, which the 2023 framework intended. If so, the headline numbers overstate how much new cost was created.
The verdict
Each of these points has force, and none of them carries the conclusion. First, the reclassification defence explains a level shift, not a trajectory. IRDAI’s answer that total expenses kept rising after reclassification is borne out by its own series, which shows general insurers’ total expenses climbing to 31 per cent of premium in FY26. Second, the growth the industry is defending is not the growth policyholders need. Motor commission quadrupled on a compulsory product with regulated prices. Third-party commission went from 4.3 to 22 per cent. Group health commission reached 93 per cent in a high-claims line. Credit-life payouts approached 45 per cent on cover tied to loans. None of this bought a single additional insured life; it bought the right to sell to someone who would have bought anyway. Third, the evidence on the “inclusion” defence is thin. Penetration did not rise as commissions doubled, which is the most telling fact in the whole debate. Fourth, the international record shows that commission discipline produces a repricing dip and then normal growth, as China’s motor market did. Fifth, the proposals already contain the rural uplift the steel-man demands: 10 to 20 per cent above the cap for small towns and villages.
So the reform will not kill the growth of the insurance sector. It will kill a business model that fused commission with captivity. Revenue at distribution platforms will fall, and Dahiya’s 30 per cent estimate is plausible for the non-life book. NBFC fee income from credit-linked insurance will shrink. OEM-linked motor distribution will lose most of its insurance margin. Some sub-scale insurers will merge or exit, and consolidation is a likely outcome. Premium growth in FY2027-28 may wobble as distributors test the new economics, much as China’s motor premiums did in 2021. But if even part of the expense reduction flows into lower prices, wider cover or higher claims payouts, the risk pool will expand. That is IRDAI’s stated aim, and Jefferies’ preference for efficient insurers suggests investors think it will.
The threat to comfortable practices
What is genuinely threatened is a set of comfortable habits. Rebating, where part of an inflated commission is passed back to the customer or dealer to win business, dies when commission is too small to share. Shelf-space bidding by banks dies when payouts are capped regardless of how many insurers a bank ties up with. Related-party payouts to promoter banks and group entities, now up to 81 per cent of commission in general insurance, would need prior intimation, website disclosure and board certification. Dealer capture of motor buyers is broken by the nil third-party cap, the MII option at the showroom and the ban on refusing cashless repair. The opaque margins of employee-benefits brokers meet a 2.5 to 5 per cent cap with a Rs 1 crore ceiling per group health policy. The “marketing”, “rewards” and “infrastructure” workarounds that DGGI exposed collapse into a definition that covers “any payment to a distributor, by whatever name”, with a cost audit to enforce it. That is why the market reaction was so violent at distributors and so muted at efficient insurers. The reform redistributes value from intermediaries to insurers and, if competition works, from insurers to policyholders.
Lessons and Way Forward
The first lesson is that the size of the commission matters less than what it rewards. Caps alone are blunt. Khaitan & Co is right that they “regulate the quantum paid, not the conduct it rewards,” and the pre-2023 regime showed that money moves to whichever expense line is unpoliced. IRDAI should therefore treat the caps as a base, not a ceiling on good behaviour. It should allow outcome-linked pay above the base for persistency, low complaints, high claims-settlement experience and documented suitability, as Singapore’s Balanced Scorecard does. Clawback should extend beyond mis-selling and free-look cancellation to early lapse and surrender. First-year commission should be spread over the premium-paying term, on the MAS model of a capped upfront share.
The second lesson is that the best enforcement is transparency. The omission of retail point-of-sale disclosure is the paper’s largest gap. A customer buying motor cover at a dealership or health cover through an app should see, in rupees, what the seller earns. That is cheaper to enforce than any cap, and it is the remedy that unravelled PPI in Britain. IRDAI should also publish UK-style value measures by insurer, product and channel: claims ratios, claim acceptance rates, complaint rates and average claim payouts. That way the market can see which products resemble GAP insurance before a scandal does.
The third lesson is to sequence infrastructure before restriction. The caps and the EoM glide path should take effect only once Bima Sugam and the Public Insurance Registry can deliver price comparison, motor purchase at the showroom and seller-level tagging at scale. A glide path for caps, starting near today’s averages and stepping down over two to three years, would let distributors restructure without a cliff. It would also let IRDAI observe whether premium and penetration respond.
The fourth lesson is not to punish inclusion with arithmetic. A company-level EoM ratio rewards single-premium and group business and penalises small-ticket retail protection. IRDAI accepted this logic for crop insurance by counting only a third of PMFBY premium. The same reasoning supports a weighted denominator or an explicit allowance for retail protection sold in under-served geographies, together with clear and proportionate treatment for standalone health insurers and new entrants, on which the paper is silent.
The fifth lesson is to treat the related party as the real problem. The worst economics in Part 2 sit where the distributor and the insurer share a parent, or where a bank auctions its customer base. Prior intimation and disclosure of related-party distribution are welcome. Boards should go further and certify annually that payouts to group entities are at arm’s length and justified by cost, with independent directors personally accountable. IRDAI should also consider capping the share of an insurer’s business from any single related distributor.
The sixth lesson is to measure and review. IRDAI should commit now to a public review three years after implementation. The test should be whether penetration, claims settlement, persistency and complaint rates improved, and whether premiums fell in the lines where commission was cut. If transparency and outcome-linked pay are working, the regulator should be willing to loosen the caps, as it said in the paper: intervention on commission would be far less necessary if the market adopted full transparency. That is the regulator’s promise to the industry, and it should be honoured.
Epilogue: The End of the Comfortable Middle
For two decades Indian insurance enjoyed a comfortable middle. Prices were free, distribution was captive, and commissions were opaque enough that nobody had to ask what the customer was paying for. IRDAI’s paper ends that comfort. It does so clumsily in places, with caps that are blunt, expense ratios that ignore product mix and a disclosure gap at the point of sale. But it does so on evidence the industry has not seriously disputed. The growth the sector fears losing is largely growth in distributor revenue. The growth the country needs is growth in protected lives, paid claims and policies that stay in force. These are not the same thing, and the reform’s critics have spent a fortnight pretending they are. If IRDAI phases the caps, opens disclosure to every buyer, and pays for persistency and honesty rather than access, India may finally see what happens when insurers compete, as Seth put it, “on the price and quality of their products and services, rather than on their ability to pay higher distribution costs.”
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