The Cost of Trust: Why India Still Buys Insurance From The Neighbourhood Uncle

Even as insurance goes digital and awareness improves, India’s life insurance business continues to be powered by people - often the familiar agent next door. That human-led model is proving increasingly expensive. 

Life insurers paid a record Rs 60,800 crore in commissions in 2024–25, an 18 per cent jump that far outpaced premium growth of just 6.70 per cent, according to the Insurance Regulatory and Development Authority of India’s (Irdai) latest annual report. The widening gap has brought distribution costs back into focus, especially as regulators tighten oversight and insurers face pressure to balance growth with sustainability.

Yet, commissions remain central to how insurance is sold in India. For millions of households, insurance is still explained, not discovered—built on trust rather than product knowledge. The neighbourhood “insurance uncle” continues to command credibility, even as questions persist about whether all agents fully understand the products they sell. Irdai’s recent moves to link commissions to overall expense limits, instead of rigid caps, acknowledge this reality while attempting to curb excesses.

Why Do Individual Agent Commissions Still Matter To Insurers

According to industry experts, the advisor channel continues to be a major distribution channel for insurers. Advisors play a critical role in prospecting, conducting need-based analysis, and recommending products that align with customer requirements.

“Given the inherent complexity of insurance products, this role remains indispensable. Well-trained and professional advisors are likely to stay engaged and deliver quality advice only when commission structures are sufficiently attractive and sustainable,” says Shilpa Arora, co-founder and COO, Insurance Samadhan.

Irdai’s Latest Stance On Agent Commissions

Recent amendments to the Insurance Act (Insurance Bill 2025) empower the Irdai to prescribe limits on commissions, remuneration, and rewards payable to agents and intermediaries across insurance segments. This means the regulator will define how much agents can earn, rather than leaving it completely to insurers’ discretion.

Why The ‘Neighbourhood Uncle’ Agent Feels Trustworthy

The neighbourhood agent is trusted largely because of proximity, familiarity, and accountability. This is someone who lives in the same community, understands local realities, and often has long-standing relationships with families across generations. That social closeness creates a sense of responsibility - misguidance carries reputational consequences that go beyond a single transaction.

“Insurance is not a one-time purchase; it requires ongoing servicing, renewals, and claim support. A local agent is accessible during moments of stress - especially during hospitalisations or claims - when customers value a familiar face more than a call centre or app,” says Arora.

Trust, however, should come from competence and ethics, not familiarity alone. The ideal model is a well-trained local advisor who combines community trust with transparent advice and regulatory oversight. When those elements come together, the neighbourhood agent continues to be a reliable bridge between complex insurance products and consumers.

Don't These Neighbourhood Uncles Often Misunderstand Insurance's True Purpose Themselves?

That does happen - and it’s an important reality to acknowledge. Many neighbourhood agents entered insurance at a time when products were simpler and sales were largely commission-driven. As products have become more complex, continuous training and up-skilling have not always kept pace, leading to gaps in understanding around product suitability, exclusions, and long-term outcomes.

“However, this is not a universal issue. There is a clear distinction between legacy, under-trained agents and professional advisors who invest in education and compliance. The problem arises when familiarity and trust are mistaken for expertise, allowing outdated knowledge to persist,” adds Arora.

Says Venkatesh Naidu, CEO of Bajaj Capital Insurance Broking, “That trust is precisely why individual agents still matter. For insurers, agent commissions are not just payouts; they are a core premium-gathering cost, built into pricing because insurance in India is still explained, not discovered.”

Irdai recognises this reality. By removing rigid commission caps and linking payouts to insurers’ overall expense limits, the regulator has signalled balance curb excesses without breaking distribution.

“The problem isn’t commissions per se, but what they incentivise. Too often, even well-meaning agents don’t fully grasp the purpose of insurance, blurring protection with returns. That’s the paradox insurers must now resolve: agents remain the industry’s strongest trust carriers, yet also its weakest link,” Naidu adds.

This is precisely why the industry now needs stronger training standards, accountability frameworks, and transparent disclosures, so trust is backed by competence. 

“The neighbourhood agent model remains valuable - but only when it evolves from relationship-led selling to advice-led, need-based guidance,” says Arora.

The future, thus, lies not in cutting commissions, but in aligning them to better advice, better understanding, and better outcomes for the customer.