Reset, Not Rubble: Do the Proposed IRDAI Rules Spell ill for Insurance Distribution?
Oct 05, 2026
9 min read
Indian Markets
Executive Summary
The RBI’s decision keeps Tata Sons on a path towards listing, despite resistance from its controlling shareholders.
A Tata Sons IPO may not unlock much hidden value: TCS, its largest holding, is already listed.
Listed companies holding Tata Sons offer the clearest potential value unlock, but expectations may already be priced in.
Legal and governance hurdles could delay a listing. Investors should watch the timeline and possible share-sale pressure.
Indicator
Reading
Read-through
Status
Draft of 23 Sep; comments till 25 Oct; proposed to start from FY28
Only a proposal for now, not a rule. How long companies get to adjust depends on the start date finally announced
Life EoM
Insurers may spend 15% of premium within two years and 12.5% within five. Insurers already spending less than the benchmark get 10%
Insurers now spending 20% or more of premium will have to renegotiate their deals with sellers
General EoM
30% today, 25% in two years, 20% in five. The premium used to work out the percentage also changes, from all premium written (GWP) to only premium written directly in India (GDPI)
The same spending gives a different percentage on a different premium base, so read the cut with that change in mind
Life commission, first year
Banks and companies (entities) 5–20% and individual agents 6.25–25%, depending on how many years the customer pays premium. Long-term pure term plans 25% and 30%. Pure term plans paid once 7.5% and 10%. Savings plans paid once 1% and 2%
Term plans are favoured over savings plans. A term plan only pays out if the person dies and has no savings part
Life renewals
Term plan renewals 7.5% (entities) and 10%
(agents)
Sellers still get paid each year for keeping a customer
Health
First year 15% (entities) vs 20% (agents); renewals 5% vs 10%
A big cut in what sellers earn for looking after existing customers
Motor
Compulsory third-party cover (for damage to others) on a new vehicle: nothing for entities, 2.5% for agents. Own-damage cover (for your own vehicle) 5% for entities and 10% for agents/associates
Compulsory cover will no longer pay institutions
Credit life
Single-premium commission capped at 2%, against about 22% on average today. Total payouts can reach 45% once other payments are added. Credit life isinsurance sold with a loan, so the loan is cleared if the borrower dies
The sharpest cut; lenders bear it
Source: Ametra Research
01
01
A Ceiling on Total Costs
The Expenses of Management (EoM) limit caps the insurer’s total spending—including commissions, marketing, technology and staff—as a share of premium.
02
A Cap on Seller Payouts
Product-wise commission caps limit what a seller can earn. Both limits apply together: staying within the overall budget does not override the commission cap.
03
All Payments Count
Bonuses, gifts, awards, reimbursements and brand payments count towards commission. These payments cannot be used to bypass the cap.
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The premium base matters, too
For general insurers, the proposed calculation shifts from gross written premium (GWP) to premium written directly in India (GDPI). A smaller base makes the same spending ratio higher: ₹30 of costs is 30% of ₹100, but 33% of ₹90.
02
After product-wise commission limits were removed in 2023, distributor payouts grew much faster than premiums. The proposed rules respond to rising selling costs and incentives that could encourage unsuitable sales.
● Premium growth
● Distributor remuneration growth
Credit Life: The Sharpest Example
Credit-life commissions rose from 5% to 28% between FY23 and FY25, with total payouts reaching about 45% after other payments. These policies are typically sold alongside loans.
High Payouts Can Distort Incentives
Large upfront commissions can reward closing a sale more than checking whether a policy suits the customer. The proposed cuts are steepest where insurance is attached to an existing loan or vehicle purchase.
Key Takeaway
The reset targets the biggest payout imbalances. The proposed cuts vary by product and channel, reflecting where seller remuneration grew fastest relative to the business generated.
03
Sharper Cuts for Add-on Sales
Credit life sold with loans, compulsory motor cover and single-premium savings plans face sharper cuts. These sales often require limited additional effort to acquire the customer.
Higher Caps for Protection Advice
Long-term term insurance retains higher proposed first-year caps: 25% for banks and companies, 30% for individual agents. Renewal caps are 7.5% and 10%, respectively, recognising continued customer support.
Greater Weight on Ongoing Service: Individual agents receive higher caps across several products, reflecting their role in finding and supporting customers. The proposed framework places greater emphasis on explanation, renewals and servicing.
Key Takeaway
Lower selling costs could improve customer value—but payouts must still support the advice and service needed to keep customers adequately insured.
04
Who Lived on the Spread: Distributors and Lenders
The impact depends on product mix and how much profit comes from insurance commissions.
Online Distributors: Revenue per Policy at Risk
Lower commission caps directly reduce revenue per policy. PB Fintech indicated a roughly 30% potential decline in core online revenue, with greater pressure on health and motor. The treatment of existing policy renewals remains uncertain.
NBFCs: Insurance Income Matters
Insurance commissions represent about 26% of FY26 pre-tax profit at L&T Finance, 18% at Poonawalla Fincorp and 16% at Cholamandalam. Earnings pressure will depend on product exposure and how much lost income lenders can offset.
Banks: Exposure Varies Widely
Insurance contributes between 1% and 18% of estimated normal FY27 profit across the banks shown. Greater dependence on this income means greater sensitivity to commission cuts.
● Estimated share of normal FY27 profit
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Profit Dependence Is the Key
Assess how much profit comes from insurance commissions, particularly credit life and motor. The proposed ban on compulsory bundling could also reduce sales volumes, adding to the pressure from lower payouts.
05
Lower commissions could reduce insurers’ costs, but the benefit depends on their current spending, distribution agreements and ability to meet the proposed Expenses of Management (EoM) limits.
● Share of policies sold through banks
Room Below the Limit
Insurers already operating below the proposed spending limits are better placed. Higher-cost insurers may need to renegotiate distributor agreements and reduce operating expenses.
Scale Makes a Difference
Smaller insurers spread technology, compliance and distribution costs over fewer premiums. A ₹10 crore system costs 0.1% of ₹10,000 crore in premium, but 2% of ₹500 crore.
Product Mix Shapes the Benefit
Health and general insurers face different outcomes. Less competition over motor commissions could help, while lower own-damage payouts may put pressure on distribution.
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Bank Dependence Is Only Part of the Picture
A high share of sales through banks does not, by itself, determine the impact. Assess each insurer’s costs under the regulatory EoM calculation, its distributor agreements and product mix. Lower commissions do not automatically translate into higher profits.
06
Insurance still needs to be explained, sold and serviced. The proposed rules reshape how that work is rewarded.
Where Value Could Shift
Customer service, renewals, claims support and direct digital sales could become more important. Bima Sugam could also change how customers buy and manage insurance.
Which Models Face Pressure
Businesses reliant on high upfront commissions face lower income per policy while technology, compliance and servicing costs remain. Smaller distributors and lenders dependent on credit-life or motor commissions are more exposed.
What Could Change the Outcome?
Final rules: Commission caps and transition timelines may change.
Servicing economics: The proposed 5% health renewal cap for entities may leave too little to fund customer support.
Market response: Slow Bima Sugam adoption or higher customer charges could limit the intended benefits.
Key Takeaway
The strongest distribution models will need to earn their margins through sustained customer value as upfront payouts shrink.
07
Area
Key Variable
What to Watch
Low-cost life insurers
EoM headroom: room below the spending limit
Whether they can stay within the proposed framework
Higher-cost private life insurers
EoM gap: how far above the limit they are
Renegotiating with sellers and cutting costs
Health insurers
Commission exposure and group selling, where
one organisation buys for many people
Cost of winning customers and servicing them
Motor-led general insurers
Mix of third-party and own-damage cover
Benefit from less commission competition vs pressure on own-damage
Online distributors
Take rate and product mix
Revenue per policy and renewal income
Credit-life-heavy lenders
Insurance income as a share of pre-tax profit
How much that income can fall and how much they can make up elsewhere
Final rules
Commission limits and transition
Size of the eventual hit to earnings
Bima Sugam
Adoption
How fast the way insurance is sold changes
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08
Ametra’s Read
IRDAI’s proposed rules could reshape who earns what from insurance distribution. High upfront commissions face pressure, especially in health, motor and credit life, while insurers’ gains depend on their cost structures. For investors, the key is identifying businesses most reliant on these commissions—and waiting for the final rules before reassessing earnings.
