Insurance distribution reforms: will lower commissions benefit policyholders?

Summary

Irdai’s proposed commission caps and expense rules could reshape insurance distribution. Brokers warn of job losses and weaker service, but will lower costs translate into better outcomes for policyholders?

The deadline for feedback on Irdai’s proposed insurance distribution reforms is approaching. The Insurance Brokers Association of India (IBAI) has sought an extension, but no decision has been announced. The association warns that proposed commission caps and changes to expenses of management (EoM) could threaten intermediaries’ viability, jobs and customer servicing.

How much merit do these concerns hold? We examine the key arguments and what the reforms could mean for policyholders.

Revenue risk

IBAI estimates that the proposals could slash broking revenues by 60-70%, putting up to 1 million jobs across the insurance distribution ecosystem at risk.

Ashish Teni, senior specialist – insurance and reinsurance at Trilegal, highlighted the structural differences between corporate agents, such as banks, and brokers.

“Corporate agents may benefit from other business lines, whereas insurance brokers rely more directly on remuneration from insurance distribution and permitted ancillary services to support their operations. They must also meet regulatory capital requirements and sustain significant expenditure on skilled personnel, technology, infrastructure and customer servicing.”

As India pursues its ‘Insurance for All by 2047’ goal, Teni said the impact on distribution capacity warrants careful consideration. “Brokers play an important role in extending insurance access to customers, including through last-mile distribution. A calibrated transition, realistic implementation timelines and a clearly defined framework for alternative revenue streams would help intermediaries adapt while preserving customer access and appropriate conduct standards,” he added.

Bejon Misra, a consumer policy expert and former member of the Insurance Ombudsman Advisory Committee, said brokers should provide Irdai with a detailed revenue-impact assessment. With the government allowing 100% foreign direct investment (FDI) in insurance, he said, new international entrants could intensify competition while expanding business and employment. Intermediaries must innovate, he added.

The consultation paper also proposes allowing Insurance Distribution Entities (IDEs) and Insurance Distribution Persons (IDPs) to distribute other financial products, subject to regulatory approvals, as well as non-financial products. Misra said this could diversify their income and cushion the impact of lower commissions.

Why differentiate between distributors?

Brokers and web aggregators can work with multiple insurers, unlike individual agents, who represent one insurer across life, health and general insurance. Agents seeking wider product choice may work through brokers as point-of-sale persons (POSPs) or sub-brokers.

Mayank Gosar, founder and CEO of Softcon Capital, questioned why POSPs working through brokers should earn less than agents tied directly to insurers.