The Insurance Regulatory and Development Authority of India (Irdai) is considering an effort-based commission framework that would link distributor payouts to selling and servicing effort, according to Business Today. Life insurers fear that lower commissions for group and embedded products could shrink coverage among low-income borrowers reached through banks, non-banking financial companies (NBFCs) and microfinance institutions.
A tiered effort hierarchy
The yet-to-be-released effort hierarchy may rank individual agents highest, followed by brokers, bancassurance distributors and corporate agents, with OEM channels such as auto dealers and web aggregators at the bottom of the pyramid and hence having the lowest cap on commissions, Business Today reported.
| Hierarchy position | Distribution channel | Expected commission cap |
|---|---|---|
| Highest | Individual agents | Highest permitted cap |
| Brokers | ||
| Bancassurance distributors | ||
| Corporate agents | ||
| Lowest | OEM channels (auto dealers, web aggregators) | Lowest permitted cap |
What insurers fear
Life insurers accept that some institutional commissions may need review, but warn that a broad effort-based model could make low-premium and group covers unviable, according to Business Today. The specific concerns cited in the report include:
- Shrinking coverage – Lower commissions for group and embedded products could reduce coverage among low-income borrowers reached through banks, NBFCs and microfinance institutions.
- Unviable products – A broad effort-based model could make low-premium and group covers unviable for distributors.
- Credit-protection sales drop – If commissions drop to the extent that distribution is not viable, industry officials say the sale of credit protection covers may drop.
Premium concentration in institutional channels
In FY25, corporate agents and brokers accounted for over Rs 61,000 crore, or about 60%, of private insurers' new business premium, Business Today reported. These channels also distribute group credit-life cover linked to home, retail and microfinance loans. That concentration underscores how dependent the low-premium segment is on institutional distributors.
Regulator's disclosure push
The regulator has also begun seeking commission disclosures from intermediaries amid concerns that high payouts encourage mis-selling through institutional channels, according to Business Today. The disclosure requirement is expected to give Irdai visibility into how commissions are structured across channels before it finalises the effort-based caps.
Financial inclusion at stake
"India's life insurance penetration stood at 2.7% of GDP in FY25, underlining the role of distribution channels in reaching customers who do not buy insurance directly," an industry official said.
The official added that even if premiums are little affected, fewer people could be covered, undermining the government's Insurance for All by 2047 objective. For banks, NBFCs and microfinance institutions that rely on such commissions as part of their credit-linked insurance economics, a reduction in distribution viability could lead to lower uptake of group credit-life covers alongside loans. Treasury and finance executives tracking the insurance sector should note that Irdai's final hierarchy will determine whether institutional distributors continue to push low-premium products, and whether the flow of premium through these channels remains at the levels recorded in FY25.
Sources:
