India Plans Insurance Commission Reform to Curb Mis-Selling

India’s insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), is preparing a major overhaul of distributor commission rules to reduce mis-selling and improve transparency in the insurance sector. According to sources, the regulator plans to propose a system where commissions are paid over the life of an insurance policy instead of as large upfront payouts. A draft framework is expected within the next four to six weeks as part of broader reforms aimed at lowering distribution costs and aligning India with global insurance practices.

The proposed changes are intended to address concerns that high upfront commissions encourage agents to prioritize sales over customer needs, leading to frequent policy switching and unsuitable recommendations. India remains one of Asia’s largest insurance markets, with annual gross premium collections exceeding ₹11.9 trillion, but insurance penetration stood at only 3.7% of GDP in 2024, well below the global average. The government has already introduced measures such as removing GST on individual life and health insurance premiums and allowing 100% foreign direct investment to boost the sector.

IRDAI is also considering a new pricing model that would link commissions to the level of effort involved in selling and servicing policies. Agents providing personalized advice, assisting with documentation, and helping customers through claims could receive higher compensation than distributors offering basic sales. The regulator is also expected to tighten disclosure norms and introduce commission caps based on product type, complexity, and policy duration, aiming to create a fairer and more customer-focused insurance market.

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