What could change in insurance distribution? IRDAI proposes major reforms; comments till 25 October

On 23 September 2026, the Insurance Regulatory and Development Authority of India (IRDAI) issued a public consultation paper titled “Recalibrating Economics of Insurance Distribution”, proposing wide-ranging reforms to insurance distribution architecture, commissions, expenses, market conduct, transparency and digital infrastructure.

IRDAI has invited comments and suggestions from stakeholders and the public on the consultation paper until 25 October 2026.

Key Takeaways:

1. IRDAI has proposed wide-ranging reforms to insurance distribution with the objective of expanding insurance penetration, improving affordability, reducing distribution costs, promoting competition, improving transparency and bringing more uninsured citizens into the insurance ecosystem.

2. The proposed reforms are aligned with the objectives of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, which aims to strengthen policyholder protection, improve ease of doing business and facilitate growth of the insurance sector.

3. IRDAI proposes to replace the current fragmented distribution architecture with three broad categories:

   • Insurance Distribution Entities (IDEs);

   • Insurance Distribution Persons (IDPs); and

   • Market Infrastructure Institutions (MIIs).

4. The proposed distribution framework is based on the principle of “same structure, same functions, same norms”, ensuring entities with similar structures operate under a common regulatory framework.

5. The consultation paper proposes:

   • Simpler registration requirements;

   • Lower entry barriers;

   • Reduced capital requirements; and

   • Lower regulatory fees for distribution entities.

   1. Distributors may be permitted to undertake insurance as well as other financial and non-financial activities, creating additional business and income opportunities.

6. The proposed framework seeks to create clearer distinctions between open and closed distribution architectures, promote competition and reduce regulatory arbitrage.

7. For life insurers, the Expense of Management (EoM) limit is proposed to be linked to Gross Direct Premium Income (GDPI) and reduced to:

   • 15% within two years; and

   • 12.5% within five years.

8. For general insurers, the EoM framework is proposed to shift from Gross Written Premium (GWP) to domestic GDPI, with limits reducing from 30% of GWP to 20% of GDPI within five years.

9. IRDAI has also proposed lower regulatory fees for insurers.

10. The regulator believes reduced EoM costs could improve affordability and enhance policyholder returns in life insurance savings products.

11. Instead of a uniform commission structure, commissions may be determined based on:

    • Product complexity;

    • Distribution channel;

    • Line of business;

    • Business segment; and

    • Effort involved in selling and servicing the product.

12. Additional rewards may be permitted for the sale of insurance products in under-served rural and smaller urban markets.

13. The consultation paper also proposes cost audits and safeguards against indirect payments to improve accountability in distribution expenses.

14. Insurers and large distribution entities may be required to publicly disclose commission policies and commission structures in a simple and accessible manner.

15. Customers would be provided greater visibility into the distribution costs that form part of insurance pricing.

16. The proposals seek to curb mis-selling by:

    • Documenting customer needs and suitability;

    • Including direct and indirect remuneration within the definition of commission;

    • Linking policy sales to individual sellers;

    • Publicly reporting mis-selling incidents; and

    • Introducing commission claw-back provisions in cases of mis-selling.

17. The paper also proposes restrictions on volume-linked and reward-linked incentives for bank and NBFC employees selling insurance products.

18. The consultation paper recognises Market Infrastructure Institutions (MIIs) as digital, pull-based distribution platforms for insurance.

19. Bima Sugam has been identified as one such digital infrastructure institution.

20. The proposals envisage greater use of the Public Insurance Registry (PIR) to improve transparency, portability, comparison and operational efficiency.

21. The proposed reforms seek to create a customer-centric, competitive, efficient and transparent distribution ecosystem, while improving policyholder outcomes, reducing costs and supporting greater insurance penetration.

Also Read: IRDAI (Insurance Products) Regulations, 2024

[IRDAI Public Consultation Paper 2026, dated 23-9-2026]