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IRDAI Proposes Life Insurance Commission Cap
IRDAI issues a consultation paper titled “Recalibrating Economics of Insurance Distribution” covering distribution, structure, expenses, and commissions in insurance. The paper provides for life insurance commission caps and lower Expense of Management limits, and it provides for inviting comments by October 25.
IRDAI Consultation Paper:
| Dimension | Key Details |
|---|---|
| Life insurance commission cap | The paper provides for capping first-year commission at 20% of premium for distributors, and 25% for agents. |
| Status of caps | The article comprises that IRDAI has scrapped such commission caps in 2023. |
| Expense of Management (EoM): meaning | EoM comprises the cost an insurer charges against premiums, including administrative and distribution costs such as agent commissions. |
| EoM reduction proposal | The paper provides for reducing EoM over 5 years to 12.5% of gross direct premium for life insurers, and 20% for general insurers. |
| EoM limits for later period | The paper provides for setting EoM limits for 2028-29. |
| CareEdge Ratings assessment | The article comprises that, as per CareEdge Ratings, 20 of 22 life insurers and 28 of 31 general insurers currently exceed the proposed limits. |
| IRDAI rationale: general insurance | The paper comprises that in general insurance, premiums via brokers rise 37% between 2022-23 and 2024-25, while commissions rise 173%. |
| IRDAI rationale: life insurance | The paper comprises that in life insurance, premiums via corporate agents rise 28%, while commissions rise 125%. |
| Distributor income vs premium growth | The paper comprises that distributors’ income grows 4-5 times faster than premiums. |
| Insurance penetration: value and year | The article comprises that insurance penetration is 3.7% in 2024-25. |
| Insurance penetration: definition | Insurance penetration comprises total premium (life and non-life) divided by GDP. |
| FDI backdrop | The article comprises that FDI in insurance has been raised to 100% in December last year, and has been notified in May 2026. |
| Global market position | The article comprises that India is the world’s 10th largest insurance market. |
| Persistency: meaning | Persistency comprises policyholders continuing to pay premiums. |
| Persistency: IRDAI data comparison | The article comprises IRDAI data that 71% of online-sold policies are active after 5 years, against 43% for policies sold by corporate agents such as banks. |
| Bank distribution income metric | The article comprises that insurance distribution income for banks rises to 5.1% of profit before tax in 2025-26, from 3.5% in 2022-23. |
| Market reaction | The article comprises that PB Fintech falls 36% on September 24 and 3% more on the next day, and TurtleMint slumps 20% on both days. |