India's insurance brokers and digital insurance platforms have mounted a coordinated campaign against proposed reforms by the Insurance Regulatory and Development Authority of India (IRDAI), warning that new limits on commissions and insurers' expenses could wipe out 60 to 70 per cent of the broking sector's revenue.
The Insurance Brokers Association of India (IBAI), joined by companies including PB Fintech, the parent of PolicyBazaar, Turtlemint, Coverfox and Quickinsure, has written to the Prime Minister's Office and the Finance Ministry seeking a rethink, according to a report by Inc42 on 7 October. The industry estimates that up to 10 lakh jobs in insurance distribution could be at risk.
The dispute pits the regulator's push to bring down distribution costs and improve value for policyholders against an industry that argues it has been central to expanding insurance coverage in one of the world's most under-insured large economies.
What IRDAI is proposing
At the heart of the draft is the reintroduction of product-wise commission caps for insurance distributors, along with tighter limits on insurers' overall expenses of management. The move would partly reverse the regulator's 2023 reforms, which replaced product-level commission limits with an overall expense ceiling and gave insurers' boards more flexibility to set payouts.
That flexibility appears to be what concerns the regulator. Industry data cited in the debate shows commission payouts rising 173 per cent between FY23 and FY27, while premiums grew by about 37 per cent over the same period. For a regulator charged with protecting policyholders, commissions growing several times faster than premiums raises questions about whether customers are paying for distribution rather than protection.
Rising commissions have also been linked, in the regulator's past statements and in consumer complaints, to aggressive selling practices: policies bundled with loans, products recommended for the payout they generate rather than their fit for the customer, and high lapse rates in life insurance when buyers discover what they have signed up for. Capping commissions at the product level is one way to reduce those incentives at source.
The industry offers a different reading. General insurers' operating expenses currently average about 26.5 per cent of gross premiums, below the 30 per cent permitted, brokers argue. They also point out that policyholders in India have received an average of ₹84.4 in claim payouts for every ₹100 of premium over the past five years, compared with a global average of 72 to 75 per cent, suggesting that customers are not being short-changed.
Why brokers and insurtechs say the stakes are high
The insurance distribution ecosystem in India employs about 83 lakh people, ranging from individual agents in small towns to the technology and sales teams of large online marketplaces. Brokers argue that commissions fund the cost of reaching customers who would not otherwise buy insurance, particularly in rural and semi-urban areas.
Sanjib Jha, founder of Coverfox, has flagged the risk to rural penetration, where the cost of acquiring and servicing a policyholder is high relative to the premium. Anand Shrikhande, founder of Quickinsure, has projected job losses of more than one lakh among intermediaries if the caps are implemented in their current form.
The industry's job-loss estimates should be read as advocacy as much as analysis; they assume that distributors would cut staff rather than adapt their models. But even sceptics of the figures acknowledge that a large reduction in revenue per policy would force consolidation among smaller brokers, many of whom operate on thin margins and depend heavily on a few insurer relationships.
For listed and late-stage insurtechs, the proposal also carries direct financial implications. Online marketplaces such as PolicyBazaar have built their business models around commissions and fees from insurers for policies sold through their platforms. A sharp cut in the revenue per policy would force them to rely more on volume, ancillary services or other income streams, and could affect valuations across the sector.
The original deadline for feedback on the draft is 25 October. The IBAI has asked the regulator to extend it to the end of December to allow for wider consultation.
Insurers themselves are caught in the middle. Higher commissions have helped them win business through brokers, banks and online platforms in a fiercely competitive market, particularly in health and motor insurance. But commission spending also squeezes their margins and their ability to price products competitively. Some insurers are likely to welcome clearer limits privately, even if they are cautious about saying so in public given their reliance on distribution partners.
There is also a question of product design. Commission caps set product by product can influence what intermediaries choose to sell, steering them towards policies with higher permitted payouts. Critics of the draft argue that this could distort recommendations; supporters say that unchecked commissions already do so, pushing customers towards whatever pays the distributor most.
A familiar tension in Indian financial regulation
The disagreement echoes debates that have played out in other parts of India's financial sector, from mutual fund distribution, where upfront commissions were banned in 2009, to recent curbs on derivatives trading and financial influencers. In each case, regulators have weighed the cost of intermediation against the need for intermediaries to drive adoption.
Insurance presents a particularly sharp version of that trade-off. Total premiums amounted to about 3.7 per cent of GDP in 2023-24, according to the regulator's own data, well below the levels seen in most developed markets and many emerging peers. The government and regulator have set an ambition of "insurance for all" by 2047. Distributors argue that cutting their economics now would slow progress towards that goal; the regulator's challenge is to ensure that growth in coverage is not achieved at the cost of products that are overpriced or mis-sold.
A middle path is possible. The regulator could set caps that differ by distribution channel or customer segment, phase them in over several years, or tie higher payouts to measures of service quality such as claim support and policy persistency. Each option has precedents in other markets, and each would require more detailed consultation than the current timetable allows, which is one reason brokers are pressing for more time.
How IRDAI responds to the industry's submissions, and whether it extends the consultation window, will be watched closely by investors in insurtech and by insurers themselves. The outcome will shape not only the profitability of brokers but also how insurance is sold to the next several hundred million Indian customers.
