IRDAI proposes reforms in insurance distribution to cut costs, protect policyholders

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a wide-ranging overhaul of insurance distribution rules, with an aim to make the process of buying and servicing insurance more transparent, competitive and customer-friendly.

The regulator on Wednesday released a public consultation paper titled “Recalibrating Economics of Insurance Distribution”, covering insurance distribution structures, expenses, commissions, market conduct, transparency and digital infrastructure. IRDAI said the proposed reforms are aimed at creating a “customer-centric, competitive, efficient and transparent distribution ecosystem”.

For consumers, the proposals could mean greater clarity about who is selling them an insurance policy, how distributors are paid, fewer instances of forced bundling and stronger safeguards against mis-selling.

However, these are still proposals. IRDAI has invited comments and suggestions from stakeholders, with the consultation process open until October 25, 2026.

One of the proposed changes is to simplify the existing insurance distribution architecture.

IRDAI wants to move towards a simpler structure that makes it easier for customers to understand who they are buying insurance through. The regulator says the proposed architecture would also reduce regulatory and operational constraints while expanding participation in insurance distribution. -

For a policyholder, this could make the distribution chain easier to understand and bring greater clarity about the role of the intermediary involved in selling or servicing the policy.

A major consumer-facing proposal relates to commissions paid to insurance distributors.

IRDAI has proposed that insurers and large distribution entities disclose their commission policies and structures in a simple and accessible manner. Certain commercial policies would also carry commission disclosures.

The regulator says this would allow customers to understand the distribution costs built into the pricing of insurance products and make more informed choices.

The commission framework itself is also proposed to be recalibrated. Instead of following a uniform approach, commission limits would take into account factors such as the segment, line of business, distribution channel, product complexity and the effort required to sell and service the product.

This is important for consumers because the regulator is seeking to align distributor remuneration more closely with the nature of the product and the work involved in selling and servicing it.STRONGER SAFEGUARDS AGAINST MIS-SELLING

The consultation paper also proposes several measures aimed at tackling mis-selling.

IRDAI has proposed documenting customer needs and suitability and bringing all forms of remuneration, direct or indirect, monetary or non-monetary, within the definition of commission for regulatory purposes.

It has also proposed prohibiting volume-linked or reward-linked incentives for bank and NBFC employees selling insurance. The proposals include linking the identity of the individual to the policy sold, placing information on mis-selling incidents in the public domain and allowing commission claw-back in cases of mis-selling.

For consumers, the idea is to create greater accountability for the person selling the policy rather than leaving the distribution process opaque.

IRDAI has also proposed tracking “dark patterns” and making relevant performance information available to strengthen market discipline. NO FORCED INSURANCE BUNDLING

Another consumer-focused proposal relates to the practice of bundling insurance with other financial products and services.

IRDAI wants stronger safeguards against compulsory bundling of insurance with other financial products and services. The proposal is part of a wider effort to address mis-selling and improve accountability in insurance distribution.

For customers, the proposed safeguards could mean greater clarity and choice when insurance is offered alongside another financial product.COULD INSURANCE BECOME MORE AFFORDABLE?

IRDAI has also proposed changes to the Expense of Management framework and distribution costs.

The regulator says the proposed changes are intended to progressively improve cost efficiency across the sector. It has linked lower structural costs with the possibility of supporting affordability for policyholders. -

This does not mean insurance premiums will automatically fall if the proposals are implemented. Rather, IRDAI's stated objective is to reduce structural and distribution costs in the insurance ecosystem, which it says could support affordability.advertisementMORE DIGITAL OPTIONS TO BUY AND SERVICE POLICIESDigital infrastructure is another important part of the proposed reforms.

IRDAI has proposed Market Infrastructure Institutions (MIIs) as digital, pull-based alternatives for insurance distribution, with Bima Sugam identified as one such infrastructure. It has also proposed greater use of the Public Insurance Registry (PIR) to support transparency, comparison, portability and operational efficiency.

The regulator says these digital channels are intended to make buying and servicing insurance easier, expand consumer choice and improve access to insurance, including for currently underserved segments. WHAT THIS COULD MEAN FOR POLICYHOLDERS

Taken together, IRDAI's proposals are aimed at changing how insurance is sold, rather than simply changing the insurance products themselves.

The regulator says a simpler distribution structure could improve competition, lower structural costs could support affordability, better-aligned remuneration could strengthen incentives for quality advice and service, greater transparency could improve customer choice, and digital infrastructure could reduce transaction costs and provide more direct access to insurance.

The proposals are now open for stakeholder comments. The more detailed consultation papers will provide the underlying framework and data behind these proposed changes, including the regulator's analysis of distribution costs and commissions.- EndsPublished By: Sonu VivekPublished On: Sep 24, 2026 08:43 IST