When someone buys car insurance in India, the natural assumption is that most of that premium pays for actual coverage. For a meaningful chunk of policies sold today, that assumption is wrong.

On a ₹50,000 motor insurance premium for a new car, an insurer may end up paying anywhere between ₹20,000 and ₹30,000 to the dealer or intermediary who sold the policy — meaning 40% to 60% of what the customer pays never touches the risk it's meant to cover. As one industry source put it, the genuine price of the product might be ₹20,000 to ₹30,000, but the customer ends up paying nearly double simply because of the commission baked into the price.

The Insurance Regulatory and Development Authority of India has now put out a consultation paper attempting to address this — and depending on who in the industry you ask, it's either a meaningful first step or a disappointingly modest one.

WHAT'S ACTUALLY BEING PROPOSED

The regulator's draft requires insurance intermediaries earning more than ₹10 crore annually in commissions to publicly disclose those earnings on their own websites. A second proposal would tag every single policy sold to the specific individual responsible for that sale — a measure squarely aimed at closing accountability gaps, particularly in channels where mis-selling has historically been hardest to trace back to any one person.

The scale of what's at stake makes the urgency clear. Life insurers alone paid out ₹60,800 crore in commissions in FY25 — up 18% year-on-year — while overall premium growth limped along at just 6.7% over the same period. On the non-life side, commission expenses touched ₹47,266 crore, and IRDAI has already pulled up 23 separate insurers for breaching their permitted expense limits.

This isn't IRDAI's first attempt at reining in distribution costs. The regulator had previously fixed commission caps ranging from 15% to 35% depending on the product, before overhauling the framework entirely in 2023 with what's known as the Expenses of Management rules — capping total insurer expenses, commissions included, at 30% to 35% of gross written premium.

The trouble is, it didn't really work. Animesh Das, CEO of Acko General Insurance, explains why: the 30% cap under EoM was still leaving room for elevated commissions, because insurers simply optimised around it — shifting costs from one bucket to another, rebalancing their product portfolios — without it leading to any genuine correction in overall commission levels.

A particularly telling example is Turtlemint, one of India's largest insurance distribution platforms, which generated 88% of its revenue in FY23 from what it classified as "marketing fees" — payments from insurers for lead generation and brand promotion, conveniently sitting outside strict commission rules. When IRDAI tightened commission regulations and closed that particular loophole, Turtlemint's revenue collapsed by 81% on a restated basis the very next year.

THIS DRAFT MAY JUST BE THE OPENING ACT

What's notable about the current proposal is what it deliberately leaves out. Shrehith Karkera, cofounder of Ditto Insurance, says much of the industry had expected this draft to actually restructure how commissions get paid — and was surprised that it doesn't. The broader expectation had been a shift toward an effort-based commission framework, where what a distributor earns is tied to the actual work involved in selling and servicing a policy, rather than simply closing the sale.

That structural reform hasn't materialised yet — but sources suggest IRDAI is working on exactly that behind the scenes, potentially including a hard cap on commissions per policy alongside even tighter EoM limits. One industry executive went so far as to describe the current consultation draft as not even 1% of what could eventually be coming, with some of the commission caps reportedly under internal discussion sitting in the single-digit percentage range — a level that would fundamentally reshape the economics of how insurance gets sold in India.

The anxiety this has triggered is already visible. PB Fintech chairman Yashish Dahiya has publicly said that commission caps of this magnitude could pose an existential threat to distribution platforms like Policybazaar, and that the company may need to evaluate obtaining its own insurance manufacturing licence — effectively designing, underwriting, and selling policies directly, rather than remaining purely a distributor dependent on commission income.

TRANSPARENCY TODAY, STRUCTURE LATER

The disclosure draft on the table right now is squarely aimed at a more immediate, more visible problem.

When a customer lands on an insurance aggregator's comparison page and sees a policy sitting at the top labelled "recommended," there's currently no way to know whether that ranking reflects genuine suitability for the customer or simply reflects which insurer pays the platform the most. If platforms are required to disclose exactly what they earn from each insurer, customers gain a window into the incentive structure sitting behind every recommendation. As one industry executive put it, if a platform discloses 25% commission on one policy and 8% on another, customers can start asking the obvious question — why is the higher-commission product the one being pushed?

Karkera, however, urges some caution before assuming this automatically changes consumer behaviour. The draft doesn't yet specify exactly how commissions should be reported — whether platforms disclose what each individual insurer pays them, or some other breakdown entirely. Until that detail is locked down, he argues, it's premature to predict which direction disclosure will actually move customer decision-making.

The policy-tagging proposal, meanwhile, is widely seen as targeting bancassurance specifically — the channel where banks sell insurance alongside their core lending and deposit products, and where accountability for mis-selling has been notoriously difficult to pin down. A customer walking into a branch to renew a loan or open a fixed deposit is frequently pitched an insurance product that pays the bank a significantly higher commission than alternatives — and because the customer trusts the bank's advice by default, a structural imbalance gets built into the relationship from the start. When that product later turns out to be unsuitable, there's often no clear individual left to hold accountable.

The RBI has been moving in parallel on exactly this front. In June 2026, it issued new directions banning the bundling of insurance with loans outright, mandating explicit, separate consent for every product sold, and making regulated lending entities directly accountable for mis-selling carried out by their own agents — a framework set to take effect from January 1, 2027.

For insurtech distribution platforms — Policybazaar, InsuranceDekho (now merged with RenewBuy), Coverfox, and others built almost entirely around the distribution model — the implications run well beyond simple compliance paperwork. Mandatory disclosure could fundamentally change how customers weigh recommendations, and over time, reshape the underlying economics of distribution itself.

THE DEEPER PROBLEM MIGHT NOT BE COMMISSIONS AT ALL

Das believes commission-led business models are heading for a real revenue squeeze, and will need to figure out how to expand beyond their existing market penetration to compensate. Karkera agrees lower commissions will be disruptive, but expects the industry to adapt — distributor cost structures are mostly people-related and don't shift overnight, so sharp commission changes will genuinely affect how the business operates in the short run, but adaptation tends to follow, especially when the underlying change benefits consumers.

There's a less obvious risk worth flagging too. If commissions fall sharply enough, becoming an insurance agent may simply stop being an attractive career path — potentially shrinking the agent workforce that much of India's insurance distribution, particularly in smaller towns, still depends on heavily. Das suggests a meaningful cap could make the profession less appealing altogether, triggering a market correction as fewer people choose to enter the business in the first place.

This all sits against a genuinely troubling backdrop: India's insurance penetration fell to 3.7% of GDP in FY25, the third consecutive annual decline from the pandemic-era peak of 4.2%. Insurance density stands at just $97 per capita, against a global average of $943.

Critics of the current distribution model point to a deeper incentive problem underneath the penetration numbers. Agents typically earn significantly fatter commissions selling traditional endowment and ULIP products compared to pure term insurance — even though term plans usually deliver far more actual protection per rupee of premium paid. The argument goes that distributors end up steering customers toward whatever maximises their own earnings, not whatever maximises the customer's actual coverage.

Karkera pushes back on commissions being treated as the primary villain here. Commissions are part of the picture, he says, but not the whole of it — medical inflation, claims costs, and how risk gets priced all play their own role, and blaming high premiums primarily on distribution oversimplifies what is genuinely a complex, multi-layered problem.

One industry analyst frames the deeper question differently altogether: is the insurance distribution ecosystem even solving the right problem? In an ideal market, customers would buy directly from insurers and simply trust that claims get honoured fairly and promptly. The fact that intermediaries remain so central to how Indians buy insurance suggests that trust in insurers themselves remains incomplete. People don't lean on advisors purely for product discovery, the analyst notes — they lean on them because they want someone in their corner if things go wrong with the insurer later.

Seen through that lens, commission caps don't really fix the underlying issue. Squeezing distributor income doesn't address why customers feel they need an intermediary standing between them and the insurer in the first place. A more durable fix, the analyst argues, would tie distributor pay to actual customer outcomes — claims support turnaround times, grievance resolution rates, complaint volumes — rather than simply to closing the transaction. That, he suggests, would align incentives against mis-selling far more effectively than any commission ceiling ever could.

WHAT COMES NEXT

IRDAI currently has five separate drafts open for public consultation, with feedback due across July 8 to 10. Beyond the intermediary disclosure overhaul, the remaining four cover how IRDAI itself frames future regulations, a revised penalty regime, lower capital requirements for foreign reinsurers entering the Indian market, and new cybersecurity guidelines for insurers.

Das expects considerable noise around all of this in the months ahead, with narratives forming on both sides of the debate. Whatever the final rules end up looking like, they're likely to reshape how India's insurance industry — and the startups built on top of it — actually operates.

The disclosure draft is the visible first step. Whether it's followed by the harder structural reform the industry is already bracing for — actual caps on what gets paid per policy — will determine whether this becomes a meaningful turning point for Indian insurance distribution, or simply the easy part of a much bigger fight still to come.