IRDAI Wants to Rewrite How Insurance Is Sold in India. Here Is What Changes.

IRDAI’s September 2026 consultation paper would change how much insurers can spend acquiring business, how distributors are paid, and what a seller must prove about suitability. What it proposes, who disputes it, and what it means for policyholders.

Note: this piece describes a consultation paper, not a rule. Nothing in it has taken effect, nothing here changes a policy you already hold, and the final regulations may differ from what is proposed. Comments close on 25 October 2026.

What IRDAI has actually published

On 23 September 2026 the Insurance Regulatory and Development Authority of India released a consultation paper titled Recalibrating Economics of Insurance Distribution, issued in two parts. It is a proposal put out for public comment, and the comment window closes on 25 October 2026. Until the regulator notifies final rules, every number and every obligation described below remains a draft.

The paper is anchored in the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act 2025, which came into force on 5 February 2026. Its subject is the money: how much an insurer may spend to acquire business, how distributors are paid, who is allowed to distribute at all, and what a seller must be able to show about why a product suited the person who bought it.

What IRDAI says it is trying to do

It is worth reading the regulator’s own framing before the industry reaction, because the two do not match. The paper presents itself as widening distribution rather than shrinking it: expanding avenues for business diversification and revenue generation, allowing people in relatively small markets to venture into insurance business, supporting employment generation, improving the income potential of individual distributors, and enabling entrepreneurs in smaller markets to enter the business at all.

• Significantly lower entry and capital requirements to become a distributor.
• Simpler registration and lower fees.
• Freedom for distributors to also carry on non insurance financial and non financial business.
• One set of norms applied on the principle of same structure, same functions, same norms.

The money: expenses of management

For general insurers the paper changes both the limit and the thing it is measured against. The basis moves from Gross Written Premium to domestic Gross Direct Premium Income, and the limit reduces from 30 per cent of GWP to 20 per cent of GDPI within five years, through progressive annual reductions. The basis change matters as much as the headline number: GWP and GDPI are not the same denominator, so the two percentages are not directly comparable and the real compression is not simply ten points.

For life insurers the paper proposes a company level limit linked to Gross Direct Premium Income rather than a limit set product by product: 15 per cent within two years and 12.5 per cent within five years. The detail is set out in Box 2 of Part 1.

Two proposals sit alongside those numbers and matter as much as the glide path itself. The paper would refine how expenses of management are computed in the first place, specifically to preclude work around the limits, so the ceiling cannot be met by reclassifying a cost rather than removing it. And the regulator frames the reduction as a nudge to insurers to improve their own operational efficiency, not simply as money moved away from distributors. Whether it lands that way is the argument the industry is actually having.

How commissions would be set

The paper does not propose one flat ceiling. Commission limits would take into account the segment, the line of business, the distribution channel, the complexity of the product, and the effort involved in selling and servicing it, rather than applying a uniform approach across all of them. The detail sits in Boxes 4A and 4B of Part 1.

• Every form of remuneration counts toward the limit, whether direct or indirect, monetary or non monetary.
• Higher commission limits are proposed for distributors working under closed architecture, meaning a restricted scope of products, with opportunity based levels for those operating open architecture.
• Life products with long payment terms and good persistency would attract a larger renewal commission.
• Safeguards against indirect payments, so a limit cannot be met on paper and exceeded in practice.

Rural and small town sales could pay more, not less

This is the proposal most often missed in the coverage. Sales in under served areas may carry rewards above the normal commission limits: small towns with a population up to 50,000 and rural areas, and smaller cities with a population up to 10 lakh. For a distributor working outside the metros, the paper is not uniformly a pay cut.

Who counts as a distributor

The current patchwork of distributor categories collapses into three: Insurance Distribution Entities, Insurance Distribution Persons, and Market Infrastructure Institutions. The organising principle is same structure, same functions, same norms, so two businesses doing the same job would face the same rules regardless of what they are called today. Market Infrastructure Institutions are framed as digital pull based channels, with Bima Sugam named as one of them. The paper envisages more such institutions being promoted by insurers themselves.

The selling rules that would bite

• Insurance could not be made compulsory as a condition of obtaining another product, though packaging it with lending remains permitted where that explicitly serves the policyholder’s interest.
• Bank and NBFC staff could not receive volume linked or reward linked incentives for selling insurance.
• The seller would have to document the customer’s needs and why the product recommended was suitable for them.
• The identity of the individual who sold a policy would be linked to that policy.
• Commission could be clawed back where a policy is found to have been mis sold.
• A direct connect between the purchaser and the insurer would be mandatory before a policy is issued, and premium would have to be paid directly to the insurer.
• The number of layers in a distribution chain would be reduced.

Transparency and enforcement

• Commission would have to be mentioned on policies with a sum insured above Rs 50 crore.
• Expenses of management and commission information placed in the public domain, with insurers and large distribution entities disclosing their commission policies and structures in a simple, accessible manner.
• Product features, pricing and quality disclosed, so a buyer can see what a product does and what it costs before committing to it.
• Cost audits, with the results placed in the public domain.
• Tracking of dark patterns in how products are sold.
• Mis selling incidents, and the performance of insurers, distribution entities and distribution persons, placed in the public domain.
• Individuals involved in unfair practices identified, rather than left behind a firm’s name.
• Enhanced oversight of grievance redressal.

The rest of what is in there

• Seamless portability for policyholders through the Public Insurance Registry.
• The Public Insurance Registry owned by the regulator and built as population scale, interoperable and non exclusionary public digital infrastructure for insurance, with a business facing layer alongside the customer facing one.
• A wider scope for buying insurance directly, without a distributor in the middle.
• Measures to let customers compare products and services before they buy.
• Insurers allowed to distribute the products of a group company that is not a competing insurer.
• The regulatory fee charged on insurers is also proposed to be reduced. The press release does not put a figure on it.

The case in support

The argument for the paper is that Indian insurance distribution has been paid to sell rather than paid to suit. When the product that pays the seller most is also the product the seller recommends, the mismatch surfaces at claim time, years later, when the buyer has no way back. Documenting suitability, naming the individual seller on the policy, and allowing commission to be reversed on a mis sold policy attack that directly. The transparency measures do the same work from the other side: a commission structure that has to be published in plain language is harder to design badly. The expense cut carries the same logic on the insurer’s side of the ledger: the stated aim is to push insurers toward operational efficiency, not merely to move money away from the people selling for them.

The case against

The Insurance Brokers Association of India has warned that the reforms would cause roughly one million job losses and a 60 to 70 per cent revenue loss for distributors. Those figures come from the industry body and from press reporting of its response, not from the paper. The concern underneath them is straightforward: a large part of Indian distribution is built on commission income alone, and a compressed expense envelope lands hardest on small agencies with nothing else to fall back on.

What makes this genuinely contested rather than one sided is that IRDAI’s own stated aims point the other way. The same paper proposes lower entry and capital requirements, simpler registration, lower fees, permission to run non insurance business alongside, and rewards above the normal limits for rural and small town sales. One side reads the paper as the end of distribution as a livelihood; the regulator presents it as widening who can make a living from it. Both cannot be right, and the distance between those two readings is the real story of this consultation.

What the regulator has said since

IRDAI Chairman Ajay Seth said on 15 October 2026 that the intent is not to disrupt existing business models but to facilitate an orderly transition, and that the regulator is engaging with insurers and distributors ahead of the 25 October deadline. Those remarks come from press reporting rather than from the paper itself.

What this means for you as a policyholder

Nothing changes today. If the paper becomes rules broadly as drafted, these are the effects you would actually notice.

• You would be able to see what your distributor is paid, at least on large policies and through published commission structures.
• Your seller would have to record why the product they sold you suited your situation, which gives you something concrete to point at if it did not.
• Being pushed into a policy as a condition of getting something else approved would be prohibited outright.
• Mis selling would carry a financial consequence for the seller, not just a complaint for you to chase.
• Buying straight from an insurer would get easier, because the paper proposes widening the scope for direct purchase.
• Comparing products and services before buying would be something the rules actively support rather than something you improvise across tabs.

In the meantime the practical advice is unchanged: read what your policy actually covers before you need it, and do not buy on price alone.

If a claim has already been rejected, the rules as they stand today still give you several routes: how RiskPe recovers rejected claims. For how commission driven selling shows up on the aggregator platforms, see RiskPe vs Policybazaar.

Primary source: the IRDAI press release of 23 September 2026 and the consultation paper Recalibrating Economics of Insurance Distribution, available at iib.gov.in/dr. IBAI’s figures and the Chairman’s remarks of 15 October 2026 are from press reporting and are attributed as such above.