Coverfox founder Sanjib Jha issued an open letter to IRDAI on September 29, flagging the regulator’s 2% commission ceiling on loan‑linked insurance as a threat to the business model of lenders and their distribution networks.
Jha points to the steep climb in insurers’ expense ratios: private life insurers reported a jump from 16.5% in FY21 to 20.2% in FY26, while private general insurers rose from roughly 25% in FY19 to 32.1% in FY26. He argues that accounting changes and reclassifications—such as the 2023 shift of some distribution payouts to marketing expenses—inflate these figures.
The proposed cap could hit the rural segment hard. A NABARD NAFIS survey in 2021‑22 found that 52% of rural households carried debt, yet only 24% owned life insurance. Jha warns that a 2% ceiling might render credit‑linked coverage uneconomical for lenders, jeopardising coverage for lower‑income borrowers.
Brokers add weight to the opposition. The Insurance Brokers Association of India, representing 798 licensed brokers that sponsor 14.81 lakh of India’s 27.18 lakh point‑of‑sale agents, argues that commission caps below the cost of servicing customers will shrink the workforce and reduce the number of agents willing to sell insurance in smaller towns.
The consultation paper, released on September 23, remains open until October 25. While IRDAI cites a drop in general insurers’ total expenses from 28.2% to 26.5% under the 2023 framework, the association insists that the apparent rise in commissions is largely a reclassification effect. The industry will watch the upcoming decision closely, as it could reshape pricing, distribution and rural penetration for the next fiscal cycle.