Irdai Planning Consultation Paper On Insurance Commission, Agents Could See Effort-Based Payouts

Insurance distributors may see changes in how they are paid, with the regulator considering a model in which remuneration is more closely linked to the effort put in by each channel. The Insurance Regulatory and Development Authority of India (Irdai) plans to bring out a consultation paper on distribution reforms. One of the key ideas under discussion is whether a uniform commission structure should give way to a more differentiated system based on the distributor's role.

The change, if taken forward, could affect individual agents, banks, brokers, corporate agents, Web aggregators, original equipment manufacturer-linked channels, and direct sales models. The broad thinking is that every channel does not involve the same level of work, cost, or customer interaction. As such, a single approach to commission may not reflect the ground reality of insurance sales.

Why Individual Agents May Matter More

Individual agents may receive special attention under such a framework. In many markets, especially outside large cities, agents are still the main link between the insurance companies and customers. They typically explain why a family needs insurance, what kind of cover is suitable, how premiums work, and what the policy will or will not cover. However, not every interaction with a potential customer ends in sale.

In instances where policyholders buy from them, they often become the single point of contact for all policy-related work, be it for renewals, nomination changes, claim-related guidance, and basic doubts about policy terms. This kind of handholding becomes especially important for first-time buyers.

This is one of the reasons being cited for an effort-based remuneration structure that places more value on the work done by agents who acquire and service customers directly. The idea is not just about paying higher commissions, but about recognising the difference between a high-touch sales process and a low-touch digital or institutional sale, according to a report by ETNOW.

At the same time, other channels, such as banks, brokers, and online platforms also remain important. Banks bring scale and access to existing customers. Brokers may help in the comparison and placement of policies, while digital platforms can make discovery and purchase easier. The regulator’s challenge will be to create a structure that recognises all these roles without encouraging mis-selling.

What It Means For Customers

Commission rules may look like an internal matter between insurers and distributors, but they have a direct bearing on policyholders. The way a distributor is paid can influence the kind of products that are pushed, the quality of explanation given, and the support available after the policy is bought.

For instance, a customer buying a life insurance policy may need clarity on the premium payment term, lock-in period, surrender value, exclusions, and the difference between protection and savings products. In health insurance, the buyer may need to understand waiting periods, room rent limits, co-payments, pre-existing disease rules, and claim procedures.

When these details are not properly explained, disputes often arise later. A remuneration system that rewards genuine customer effort could, in principle, improve the quality of advice. It may also encourage distributors to focus on persistency, renewals, and claim assistance, rather than only on fresh sales.

Sector data shows why the issue is significant. Individual agents accounted for nearly half of the new business in life insurance in FY25. Banks as corporate agents also had a large share, while direct business and brokers accounted for smaller portions. In general insurance, brokers had a bigger role, followed by direct business and individual agents.

These numbers show that distribution is not led by one channel alone. The sales process differs sharply across life, health, motor, and other general insurance products. That is why a more nuanced commission framework may be considered.

Insurers May Have To Rework Sales Models

For insurers, any new commission structure could mean a rethink of their distribution strategy. They may need to examine how they pay different channels, how they train agents and intermediaries, and how they monitor sales conduct.

The regulator has, in recent years, been pushing insurers to improve access, simplify processes, and make insurance more customer-friendly. A revised distribution framework would fit into that larger direction.

However, the final shape of the proposal will matter. If the new system is not carefully designed, higher payouts in some channels could still lead to aggressive selling. On the other hand, if it is linked to customer service, renewals, persistency, and proper advice, it could improve trust in insurance.

For policyholders, the most important outcome should be a better explanation at the time of purchase and better support after the sale. Insurance is a long-term financial product. A policy bought without proper understanding can later become a source of disappointment.

A consultation paper will allow insurers, intermediaries, and other stakeholders to respond before the framework is finalised. Till then, the direction is clear: insurance distribution may move towards a model where commission is not seen only as a sales payout, but as compensation for the actual work done in reaching, advising, and servicing customers.

FAQs

1. What change is Irdai considering in insurance commissions?

Irdai may consider moving from a uniform commission structure to an effort-based model, where payouts depend on the role and work done by each distribution channel.

2. Why could individual insurance agents get more attention under this model?

Agents often spend more time explaining policies, helping with paperwork, renewals, and claim-related doubts, especially for first-time buyers and customers outside big cities.

3. How can this affect policyholders?

If designed well, the model could improve product explanation, after-sales support, renewals, and claim assistance, but the final framework will need safeguards against mis-selling.