India’s insurance regulator has opened a fundamental debate about who captures the economics of an insurance policy: the policyholder, the underwriter or the distributor.
On September 23, 2026, the Insurance Regulatory and Development Authority of India released a two-part consultation paper titled “Recalibrating Economics of Insurance Distribution.” It proposes changes to expense limits, commission structures, bancassurance practices and digital market infrastructure.
The proposals are not final regulations. Stakeholder feedback and the regulator’s final wording could materially change the commercial impact. Yet the market treated the paper as a structural threat to commission-heavy distribution models, sending PB Fintech down 36% on September 24.
Why IRDAI is intervening
In 2023, IRDAI moved away from product-level commission caps and allowed insurers greater flexibility within overall Expenses of Management limits. The intention was to give companies room to manage distribution while improving insurance penetration.
The regulator’s consultation data suggests that distribution costs subsequently grew much faster than the premiums routed through important intermediary channels.
For a representative life-insurance sample, new-business premium through corporate agents and banks increased about 28% between FY2023 and FY2025, while combined distributor payouts—including commission, rewards and other remuneration—rose roughly 125%.
In general insurance, premium routed through brokers increased about 37%, while broker commissions rose approximately 173%, from about ₹6,348 crore to ₹17,348 crore. The implied average commission rate increased from roughly 8.5% to 17%.
The concern is not merely that distributors earn more. It is that insurers may compete for shelf space through higher payouts rather than better products, service or claims experience. That can weaken customer value and increase incentives to recommend products based on remuneration.
The proposed expense glide path
The paper proposes progressively tighter Expenses of Management limits. For life insurers, the consultation discusses a path toward 15% of domestic Gross Direct Premium Income after two years and 12.5% after five years.
For general insurers, the proposed path moves from the current broad ceiling toward 25% and ultimately 20% of domestic GDPI over the transition period. Using domestic GDPI instead of broader gross-premium measures would reduce the benefit of counting inward reinsurance or other turnover that does not represent directly sourced domestic business.
A multi-year glide path would give insurers time to renegotiate distribution contracts, automate operations and adjust their product mix. It would also pressure companies whose growth relies on high acquisition spending or expensive third-party channels.
Product-level commission controls return
The consultation proposes bringing product-specific commission limits back into the framework. The direction is important because it would constrain the amount insurers can pay for particular products even when the company remains inside an overall expense ceiling.
The regulator also proposes a broader definition of commission that captures indirect benefits—not only cash commission, but rewards, marketing support, infrastructure assistance and other forms of remuneration. That approach is intended to prevent a formal cap from being bypassed through side payments.
Published summaries of the proposal cite differentiated ceilings across product categories, including tighter limits for first-year health and motor third-party business. Final percentages should be treated as provisional until IRDAI issues binding regulations.
The intended behavioural shift is from maximising first-year sales to maintaining policies. A structure that favours renewal income over large upfront payouts can align distributors more closely with persistency, suitable advice and long-term customer service.
Bancassurance and loan-linked selling
Banks and NBFCs are a major insurance-distribution channel because they already control customer relationships, credit data and transaction access. That reach can lower acquisition costs, but it also creates the risk that customers feel compelled to buy insurance when taking a loan or opening an account.
IRDAI’s consultation highlights substantial variation in bank-channel remuneration. Multiple-tie-up arrangements recorded average payouts near 33% in the regulator’s observations, with some cases reaching much higher levels, compared with approximately 13% for certain single-tie-up arrangements.
The draft direction would restrict volume-linked incentives to bank and NBFC staff, scrutinise the full cost of distribution arrangements and reinforce the prohibition on compulsory bundling of insurance with loans. Digital dark patterns and misleading consent journeys are also part of the conduct problem the reforms seek to address.
Why PB Fintech fell 36%
PB Fintech, the parent of Policybazaar, closed at ₹1,207.20 on September 24, down 36% in one session. The fall erased more than ₹31,000 crore of market value and was the stock’s largest one-day decline since listing.
The market’s concern is straightforward: Policybazaar’s insurance marketplace earns revenue linked to policy distribution. If allowable commission or take rates fall sharply in health, motor and other important categories, revenue per policy can decline before technology, marketing and employee costs adjust.
Turtlemint Fintech also fell 20%, showing that investors viewed the consultation as an industry-wide challenge for capital-light distributors rather than a company-specific event.
The share-price reaction should not be confused with a completed earnings impact. The rules remain under consultation, implementation would be phased and distributors can respond through cost reductions, product-mix changes, higher volumes, renewal economics and new services. The sell-off reflects a reset in expectations, not a final regulatory outcome.
What it means for insurers
For life and general insurers, the near-term picture is mixed. Lower commission ceilings could disrupt sales growth and strain relationships with banks, brokers and digital platforms. Companies that depend heavily on expensive channels may need to rebuild their distribution strategies.
Over time, however, lower acquisition costs could support underwriting margins or allow more value to flow to policyholders. Insurers with strong proprietary agency networks, direct digital distribution and balanced channel mixes may be better positioned than those relying on a small number of powerful intermediaries.
The critical question is whether savings remain with insurers, are reinvested in growth or reach consumers through better pricing and benefits. Regulation can reduce allowable costs; it does not automatically guarantee premium reductions.
What it means for banks and corporate agents
Insurance commissions contribute to banks’ non-interest income. Tighter definitions and product-level caps could reduce fee income, particularly in credit-linked life insurance and other products where distributor economics have been unusually high.
Banks may need to focus more on suitable sales, policy persistency and customer outcomes. The change could be healthy for trust, but it would weaken the economics of treating an existing deposit or loan customer primarily as a captive cross-selling opportunity.
What policyholders could gain
The policyholder case rests on four potential improvements: lower embedded distribution costs, clearer disclosure, reduced mis-selling and stronger safeguards against forced bundling.
The development of common digital infrastructure—including Bima Sugam and the proposed distribution architecture—could also reduce duplication and make product comparison, servicing and claims journeys more transparent.
Those benefits depend on execution. Caps that are too abrupt could reduce access to advice in underserved markets, while weak enforcement could simply push remuneration into harder-to-monitor forms. The final framework must balance affordability, distribution reach and responsible advice.
The timeline and what happens next
IRDAI has invited public comments on the consultation. The paper discusses a phased transition rather than an overnight reset, with the full expense glide path extending across several years.
Investors should watch the final commission schedules, the treatment of indirect remuneration, implementation dates, differences between tied and open-architecture channels, and any concessions following industry feedback.
The bottom line
IRDAI’s proposal challenges a central assumption behind India’s insurance growth story: that rising premiums will continue to support expanding distribution payouts.
If the framework is adopted broadly as proposed, pure distributors face the most immediate revenue risk, banks face lower fee economics and insurers face a difficult transition in channel strategy. Policyholders could ultimately benefit through better value and fewer conflicts—but only if lower costs and stronger conduct rules translate into measurable customer outcomes.
The September 24 sell-off priced in a harsh version of that future. The next stage will determine how much of it becomes regulation.
Data references: IRDAI’s September 23, 2026 consultation paper, “Recalibrating Economics of Insurance Distribution”; published regulatory summaries; exchange closing data for September 24; company and brokerage commentary following the consultation.