IRDAI Is Reportedly Weighing Commissions Paid Over the Life of a Policy, Product-Wise Caps and Stricter Disclosure, With a Distribution Consultation Paper Expected by July's End

India's insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), is reportedly considering a change to how insurance distributors are paid. This article is based on a Business Today report dated July 9, 2026. The report attributes its account to sources familiar with the discussions, who are not named, and describes the change as under consideration and not as a finalised rule. It also quotes IRDAI's chairman, Ajay Seth, as saying that a consultation paper on distribution reforms was expected by the end of July 2026. The paper itself was not reviewed, and it is not known from the source whether it has been published, so readers should check IRDAI's website for the current position.

The current structure

According to the report, distributors can earn commissions of up to 40% of premiums on certain life and health insurance products, and a large share is paid at the time of sale. A commission is the payment an insurer makes to an agent or intermediary for selling a policy. When most of it is paid upfront, the seller's income depends mainly on completing the sale, and less on whether the customer keeps the policy or is well served afterward. That is the concern behind the reported reform.

What is being considered

The main idea is that commissions would be paid over the policy's tenure instead of mostly at the start. IRDAI's stated aims, according to the report, are to reduce mis-selling and unnecessary policy replacements, to improve persistency, meaning the share of policies that stay in force, and to build consumer trust. The report says the change would bring India closer to structures used in the United States, United Kingdom and several European countries. The report gives no percentages or time periods for the staggered schedule, so it is not known how much would be paid at the start or how the rest would be spread. A hypothetical illustration, with invented numbers, shows the logic: if a distributor were paid 40% of a premium at sale, the incentive to sell would be strong; if the same total were paid in equal parts over five years, the distributor would have a reason to see the customer stay. The report does not propose these numbers.

An effort-based model

The report also says the regulator is considering linking distributor pay to the effort involved in selling and servicing a policy. Agents who give personalised advice, help with documentation and support customers through claims could earn more than distributors, such as banks, that mainly sell insurance as an add-on to other products. This could shift income between channels, and the report does not say how the effort would be measured.

Other measures

Two further measures are described as under consideration. The first is product-wise commission caps, based on the complexity and tenure of each product, instead of one overall cap. The second is stricter disclosure requirements for agents, brokers and other intermediaries, so that customers see more about how the seller is paid. The report does not specify what would be disclosed or to whom.

Expert views

The report quotes two commentators. Kulin Shah of Onsurity says the reforms signal a shift from rewarding customer acquisition to rewarding value delivered to customers, and that the transition should be digital-led. Arun Ramamurthy of Staywell.Health says linking intermediary pay to policy continuity should reduce mis-selling and improve the quality of advice. These are opinions of people in the industry and not findings.

What the report does not say

The report does not say which products the staggered model would cover beyond the life and health products to which the 40% cap applies. It gives no figures on mis-selling rates and no commission amounts beyond the 40% ceiling. It does not describe a timetable for any rule to take effect, and it does not say how existing policies would be treated. It also does not describe the views of insurers, banks or agent associations, who could be affected differently.

Why the caveats matter

A reported plan based on unnamed sources can change substantially or be dropped. Consultation papers in India are normally followed by a comment period, so even if a paper was issued, final rules would come later. Insurers, distributors and policyholders should therefore treat the report as an indication of the regulator's direction and not as a rule that is in force.

Questions the consultation would need to answer

If a consultation paper is published, several design questions will decide the effect. How much of the total commission would remain upfront, and for how many years would the rest be paid? What happens to the unpaid portion if a customer surrenders the policy or the agent leaves the business? Would the same structure apply to banks that distribute insurance through their branches, whose staff are paid in other ways? And how would persistency be measured so that agents are not penalised for lapses they cannot control? The report does not address these points, which is why it is best read as a statement of intent and not a plan.

Limits

This article relies on a single news report based on unnamed sources and does not reproduce any IRDAI document. It is general information, not insurance or financial advice.