Irdai Chairman Signals Consultation Paper On Insurance Distribution Reforms

The Insurance Regulatory and Development Authority of India (Irdai) is preparing to float a consultation paper on insurance distribution regulations in the coming weeks, Irdai Chairman Ajay Seth indicated during a recent interaction with CNBC, signalling that the regulator is closely examining the way insurance products are being sold across the country.

The proposed consultation paper is expected to seek comments from the insurance industry and other stakeholders on issues related to commissions, bancassurance arrangements, distribution costs, and policyholder protection.

The move comes at a time when concerns have been rising within the sector over growing distribution payouts and allegations of aggressive selling practices in parts of the insurance industry.

Focus On Distribution Costs And Consumer Interest

According to Seth’s remarks, the regulator is examining whether the current structure of insurance distribution remains sustainable in the long run. Over the past few years, insurers have increasingly relied on banks, corporate agents, and large distribution networks to drive premium growth. However, industry observers say the cost of acquiring customers has also risen sharply.

The regulator appears particularly concerned about whether commission payouts are increasing disproportionately compared to premium growth. There are also worries that high incentives may sometimes encourage unsuitable product sales, especially in bancassurance channels where insurance products are sold through banks.

People familiar with industry discussions say the consultation paper may examine whether current commission structures are aligned with policyholder interests and long-term policy persistency.

The insurance regulator has, in recent years, moved towards giving insurers greater flexibility in designing commission structures under overall expense management norms. While insurers welcomed the flexibility, competition among insurers for distributors also intensified.

Industry executives say banks today play a dominant role in insurance distribution, especially in the life insurance segment. In some cases, bancassurance contributes more than 30 per cent of new business premiums for insurers.

Questions Around Mis-Selling

The proposed review also comes amid increasing consumer complaints around the mis-selling of insurance products. In several cases, policyholders have alleged that insurance plans were sold without fully explaining lock-in periods, surrender conditions, premium obligations, or investment risks.

Regulators across the financial sector have been paying closer attention to customer suitability and disclosure standards. Within insurance, there is growing discussion around whether distributor incentives should eventually be linked not only to sales volumes but also to customer outcomes and policy continuation rates.

However, industry sources indicate that no formal proposal on “effort-linked” or outcome-based commissions has yet been finalised.

The consultation paper is expected to become an important document for the insurance sector because any change in distribution regulations could significantly alter business strategies for insurers, especially private players dependent on bank partnerships.

Sector experts believe the regulator’s broader objective is unlikely to be restricting growth. Instead, the focus appears to be on improving transparency, reducing friction in insurance sales, and strengthening confidence among policyholders.

The upcoming consultation paper is expected to provide clearer insight into the regulator’s thinking on the future direction of insurance distribution in India.

FAQs

1. Why is Irdai reviewing insurance distribution rules now?

The regulator appears concerned about rising distribution costs, high commissions, and complaints of mis-selling in parts of the insurance sector.

2. What could the consultation paper focus on?

The paper may seek feedback on commissions, bancassurance models, policyholder protection, transparency in sales, and distributor incentives.

3. Will the review affect insurance customers directly?

Any future changes could improve disclosure standards, reduce unsuitable product sales, and make insurance distribution more transparent for buyers.