IBAI warns Irdai distribution overhaul may put 1 mn livelihoods at risk

The Insurance Brokers Association of India (IBAI) has cautioned that the Insurance Regulatory and Development Authority of India’s (Irdai’s) proposed distribution reforms could revive unethical business practices addressed by the 2023 regulations and put at least 1 million livelihoods at risk over the next five years. The association raised these concerns in a letter to Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman.

IBAI is the apex body representing India’s 798 licensed insurance brokers.

In its October 2 letter, IBAI said the proposed introduction of more than 30 commission caps across products and distribution channels, coupled with a one-third reduction in insurers’ overall expense limits, could hurt employment, competition and insurance penetration. It urged the government not to notify the proposed regulations without first publishing an impact assessment and sought continuation of the existing expense-of-management (EoM) framework until its scheduled review in 2028.

Citing Irdai data for FY25, IBAI said insurance distribution supported more than 8.3 million professionals, including individual agents, micro-insurance agents and point-of-sale persons. Brokers sponsored 1.481 million of the country’s 2.718 million point-of-sale persons and 62 per cent of motor insurance service providers, many of whom are self-employed in Tier-II and Tier-III towns. The association cautioned that lower expense limits could force insurers to cut sales, servicing and claims-related staff rather than absorb the impact entirely through efficiency gains.

IBAI also cautioned that product- and channel-specific commission sub-caps could prompt insurers and distributors to route payouts through alternative mechanisms, including overriding commissions, potentially reviving tax-compliance issues. It said this could reverse the gains made under the 2023 reforms, which addressed cases involving bogus goods and services tax (GST) input tax credit claims of ₹824 crore across 15 insurers before 2023.

The association further argued that public-sector insurers, which are subject to government audits, would be unable to match off-book payments and could lose market share as a result. It cited the decline in their market share from 65 per cent to around 36 per cent under the earlier product-wise commission cap regime. Smaller and newer insurers, along with standalone health insurers, could also face pressure because their fixed costs cannot be reduced proportionately with lower expense limits, IBAI said.

The association pointed out that general insurers’ management expenses declined from 28.2 per cent of premiums in FY23 to 26.5 per cent in FY25, while premiums grew by around 13 per cent annually. It argued that the reported increase in commissions partly reflected the reclassification of payments previously recorded under other expense heads.

IBAI also cited the general insurance industry’s loss ratio, which rose from 82.88 per cent in FY25 to 84.8 per cent in FY26, while the combined ratio increased from 112.61 per cent to 117.83 per cent, according to the General Insurance Council’s financial highlights.

The association said these ratios compared favourably with those in leading global insurance markets and indicated that a substantial share of premiums was being returned to policyholders through claims.

“Out of ₹100 premium, ₹87.3 is paid as claims,” the note said. It added that in commercial lines, including fire, group health and miscellaneous insurance, premiums were at historic lows while claims ratios remained high in favour of policyholders by global standards, according to industry estimates.

Instead of imposing hard caps on commissions, IBAI has recommended retaining the 2023 EoM framework, with tighter computation rules if required and a realistic transition path that accommodates differences in scale and new entrants. It has also proposed that where insurance is force-sold and the claims ratio remains below a prescribed threshold of 65 per cent, insurers should be required to refund part of the premium or reduce renewal premiums.

Citing the Pradhan Mantri Fasal Bima Yojana (PMFBY) and Ayushman Bharat, the association referred to the 80:110 and 85:115 thresholds, respectively, as precedents for such an approach. According to IBAI, this would ensure that customers benefit directly, simplify regulatory supervision and leave less scope for high commissions when claims ratios are low.