If Insurance Commissions Fall, Will Your Premium Fall Too?

The Insurance Regulatory and Development Authority of India (Irdai) has proposed tighter limits on distributor commissions and insurers’ expenses. It wants to address a widening gap between premium growth and what insurers pay to sell policies. According to a Times of India report on the consultation paper, distributor payouts in general insurance rose 82 per cent between FY23 and FY25, against premium growth of about 24–26 per cent.

Does that mean a life, health or motor policy will cost less? The proposals are yet to be finalised, and a lower commission does not automatically produce a lower premium.

Why Premiums May Not Fall Immediately

“This is not certain, and it is unlikely that the impact would be immediate. Insurance premiums depend on various factors beyond commissions, such as claims history, risk assessment, reinsurance, operating costs, regulatory obligations, and pricing policy,” says Arun Ramamurthy, co-founder, Staywell.health.

Insurers have to pay claims and meet other costs alongside commissions. Savings on distribution could therefore be used elsewhere in the business. The effect may also differ across life, health and motor insurance, which have different risks and ways of selling policies.

There is no single percentage of the premium that goes towards acquiring a customer. Ramamurthy says the cost depends on the product and the channel through which it is sold. Selling a life policy can require a different amount of work from selling health or motor cover. A broad industry figure would tell a buyer little about the cost built into a particular policy.

What Buyers Should Watch

Lower commissions could change the economics for agents who help customers after a sale. Some assist with renewals, policy changes, or claims, though insurers have their own service and claims responsibilities.

“It may affect the economics of specific distribution systems, especially when distributors provide ample post-sale service. Nevertheless, customer service and claim processing are not solely determined by distributor commissions,” says Ramamurthy.

The proposals also raise a question for borrowers offered insurance with a loan: is the policy needed, and must it come from the lender?

“A loan and an insurance policy are two separate products. So, while the lender can offer you insurance, to buy it or not is your decision,” says Manish P. Hingar, founder and Chief Executive Officer, Fintoo, a Sebi-registered investment advisory firm.

A lender may require a house or vehicle used as security to be insured. That does not mean the borrower must accept the policy the lender offers. Irdai has also proposed restrictions on compulsory bundling of insurance with loans; those proposals have yet to become final rules.

“A policy can be purchased from wherever it suits you the best. Your choices range from the lender, agent, online or directly from an insurer. The lender may ask you for a minimum cover amount and to be named on the policy,” says Hingar.

Before accepting a policy, borrowers should compare its cover, exclusions and premium with other options. Hingar also advises checking whether the premium will be added to the loan, in which case interest would be payable on it.

For anyone buying insurance, the immediate test remains the same: compare the price of equivalent cover and find out who will help when a claim arises. A cut in commissions is only one part of that decision.

FAQs

1. Will lower insurance commissions reduce premiums?
Not necessarily. Claims, risk and other costs also affect pricing, and Irdai’s proposals have yet to be finalised.

2. Could lower commissions affect help with claims?
They could change the support some agents provide after a sale. Insurers remain responsible for servicing policies and handling claims.

3. Must I buy insurance from my lender when taking a loan?
A lender may require a house or vehicle to be insured, but you can choose a policy that meets its requirements from another insurer.