While by Monday, stakeholders will have to send their comments, the issue has been referred to the finance ministry and even the Prime Minister’s Office, sources said.

For the insurance regulator the objective is clear: reduce costs with a thrust on transparency through expanded digital marketplaces.

IRDAI is looking to reinstate commission caps barely three years after it decided to remove them. In 2023, IRDAI announced scrapping of the stringent caps allowing insurers the freedom to decide on the quantum they wished to pay for distribution. The surge in insurance premia has now caught the regulator's attention. According to IRDAI, the hefty premium hitting the policyholder is driven by the steady increase in brokerage and distribution costs.

But the proposal has caused a flutter for lakhs of employees working for the country’s insurance brokerage firms. Currently, there are more than 850 insurance brokers in the country. According to a Primus Partners research, India’s insurance distribution network comprised around 83 lakh participants in 2024–25, including 27.18 lakh registered Point of Sales Persons (PoSPs). Brokers accounted for 42.6% of non-life premium excluding health.

Stakeholders’ Take

In response to the consultation paper, “Reforms for Recalibrating Economics of Insurance Distribution,” most stakeholders and insurance brokers have said that protecting policyholders' interests while improving transparency and curb misselling must be the objectives, though implementing rigid commission caps may prove detrimental.

The IRDAI’s move could lead to job losses for thousands, several people working in the insurance industry said.

The Primus Partners research also said that the move could impact livelihoods and access in smaller towns and underserved districts. “The issue connects directly to India’s wider financial-inclusion ambitions, including the goal of ‘Insurance for All’, and to the experience of citizens who need help understanding cover, completing documentation or pursuing a claim,” it said.

Under the IRDAI’s proposal, the commission earned by brokers on a first retail health policy could fall from around 30% to 15%.

A former official who served in the department of financial services under the Finance Ministry said that a well-thought-out strategy is the need of the hour.

“The IRDAI removed the cap on commissions to ensure expansion of reach and penetration but it must be remembered that the same policy issue should not be misused,” the official said.

“The fact is that there has been a whopping increase in insurance product costs, and more importantly, the policyholders often do not know the breakup of the cost and this needs to be addressed,” the official told The Secretariat.

In India insurance penetration is roughly about 3.7% of GDP, with life comprising 2.7% and non-life at 1%.

Win Win Policy Decision Need Of The Day

The need of the hour is to ensure that a well-thought-out strategy which will be beneficial to both insurers and policyholders.

Sources also said that lowering of costs could help in acquiring customers more aggressively.

“However, what is urgently needed is a proper analysis of the matter,” an employee working with a large insurance brokerage firm said.