IRDAI unveiled a consultation paper on 15 August 2025 that trims the segment‑level cap on expenses of management (EoM) for general insurers from 30% to 20% over five years, while life insurers will see a cut to 10%.
The 2023 reform that replaced individual commission sub‑caps with a board‑approved EoM limit was meant to boost competition, yet it unintentionally spurred insurers to chase intermediaries, driving distributor remuneration four to five times faster than gross premium growth.
Between FY23 and FY25 distributor payouts in general insurance shot up 82% to ₹24,400 crore, versus 24–26% premium growth; first‑year payouts in life insurance rose 48–52% against 11–12% premium growth. Brokers saw commission and fee income climb 60–75% over three years, while banks and corporate agents captured 38–45% of incremental commissions after the 2023 deregulation.
Regulatory arbitrage also emerged, as intermediaries labeled payments as advertising, infrastructure or marketing fees to sidestep limits. Multi‑layered brokerage structures in motor insurance, for example, inflated acquisition costs for mandatory third‑party cover.
IRDAI links high upfront commissions with policy churn and misselling, proposing standardized rates based on product complexity and greater pricing transparency. It will also recalculate EoM for general insurers on gross direct premium income, excluding inward reinsurance to avoid double‑counting.
The regulator’s broader goal is to lower distribution costs and remove barriers to entry for distributors, making insurance more affordable. Enforcement of the new caps will commence with the fiscal year 2029, and insurers are expected to adjust their commission structures accordingly.