The timing of the proposed rejig of distribution economics by IRDAI (Insurance Regulatory and Development Authority) is interesting as it came six months after India allowed centum foreign ownership in the sector.

IRDAI is re-engineering the financial metrics of distribution — axing expenses of management (EoM) limits, tightening commission and moving towards a more technology-driven distribution architecture as the regulator now feels sector has become “high cost and commission-led”.

Proposing a phased reduction in EoM limits, the IRDAI, in its consultation paper, “Recalibrating Economics of Insurance Distribution,” said that for life insurers, the ceiling will move to 15% of gross direct premium income (GDPI) within two years and 12.5% within five years from the present 30-35% levels.

General insurers would see the benchmark shift from gross written premium to domestic GDPI, with the ceiling trending towards 20% within five years against 32.1%.

The timing makes the policy sequence worth examining. India first removes the ownership ceiling, then it starts addressing the distribution-cost structure. Foreign investor interest has already increased. IRDAI chairman Ajay Seth had said in June about “significant” interest from foreign promoters seeking 100% ownership.

The country’s insurance sector saw the foreign direct investment (FDI) limit move to 100% from 74%, with the new framework coming into force this February.

Foreign interests are understandable as India’s gross premium was ₹11.93 lakh crore in FY25, but penetration was only 3.7% of GDP, implying substantial room for growth.

Questions arise as to whether the proposed EoM/commission structure treats new insurers and established players differently during the transition period. That could determine whether it is merely a broad efficiency reform or does it materially alter the competitive entry equation.

IRDAI proposes simpler registration, significantly lower entry and capital requirements, reduced regulatory fees and greater flexibility for distributors to undertake insurance as well as other financial and non-financial activities, thus expanding avenues for business diversification and revenue generation and allowing people in relatively small markets to also venture into insurance business.

Cost curve

Justifying the proposal, IRDAI indicates that distributor commissions have risen sharply, with additional payments such as promotional costs, brand fees and rewards adding substantially to base commissions.

According to the reports, the commission ratio in the public life insurance sphere was 5.18% in FY25, while it was higher at about 9% in the private sector.

Bancassurance is notably expensive: according to reporting on the consultation paper, banks account for nearly 45% of private life insurers’ premiums, while total payouts in some multiple-bank deals can be extremely high.

Highlighting that commissions outran premiums by two to eight times, the IRDA paper said that in the two years since the 2023 reforms, motor insurance through brokers saw commissions surge 259%, while premiums grew just 34%. That’s nearly eight times faster.

Life corporate agents saw a similar pattern as commissions jumped 125% on 28% premium growth, with payouts now accounting for about 27% of first-year premiums.

Across general insurance, the average broker commission doubled to 17% of premium cover. Motor third-party average commission surged from 4.3% to 22%.

For a foreign-owned insurer, a fall in distribution inefficiencies could change the competitive dynamics because the pressure is greatest in private life insurance (due to expensive bancassurance and agency expansion), health insurance (due to intermediary-heavy sales), and new entrants (as they need customer acquisition scale).

Juggling act

Going by the proposals, insurance distribution is seen more as a juggling act: expand penetration, cut acquisition costs and go digital, without dropping distributor incentives.

The IRDAI’s proposals, which have come at a delicate juncture, are an attempt to move India’s insurance industry from an intermediary-led model to a more transparent, differentiated and digitally enabled distribution architecture.

The consultation paper also proposes changes to digital distribution and customer protection. The reforms assume significance, as insurance distribution is heavily intermediary-dependent, even as digital and insurtech channels expand.

Although it does not curb bancassurance, the greater concern is economics, as IRDAI wants to prohibit volume-linked or reward-linked incentives for bank and NBFC employees selling insurance, while bringing direct and indirect remuneration within the commission framework.

Banks are among the most important corporate-agent channels, with 237 banks among 661 being active corporate agents as of March 2025.

The proposals could make aggressive cross-selling less attractive. Banks may consequently prioritise products with better economics or stronger customer relevance.

However, the bancassurance model has structural advantages — branch reach, customer data and established relationships and embedded — so lower commissions do not automatically make the channel unviable.

Nevertheless, for insurtechs and fintechs, the impact could be double-edged. On the positive side, lower traditional distribution costs could potentially improve the financial metrics of digital acquisition. Insurtechs that can sell, underwrite, and service policies digitally could benefit as insurers seek lower-cost channels. India already has 150-plus active insurtech players, with aggregate valuations above $15.8 billion and revenues of about $0.9 billion in 2024, according to Boston Consulting Group.

IRDAI is also proposing Market Infrastructure Institutions (MIIs) for insurance, with Bima Sugam envisaged as a digital, pull-based distribution infrastructure, reducing dependence on individual intermediaries and creating new opportunities for technology providers.

However, fintechs that depend heavily on commissions, lead generation or embedded insurance could face pressure. The proposed ban on dark patterns, mandatory suitability and customer-needs documentation, commission disclosure, seller-level identification and clawback of commissions in cases of mis-selling raise compliance costs.

For customers, the intended benefits are lower distribution costs, greater transparency, less forced bundling, better product suitability and potentially more competitive pricing.

The insurance regulator is also replacing a more uniform commission framework with limits differentiated by product, distribution channel, complexity and effort involved.

The interim risk is that if commissions are cut too sharply, insurance penetration could suffer, because India’s market still depends heavily on intermediaries for customer education and trust-building. Even otherwise, the country’s insurance penetration level of 3.7% (2.7% for life and 1% for non-life) is below the global average of 7.3%.

The proposed reset is positive for policyholders and digital platforms, but its second-order effect may be to make India’s fully liberalised insurance market more contestable for global capital.

Around 76% health insurance reimbursement claimants borrowed or broke investments turning their medical bills into an immediate financial burden, found the latest national consumer insights report released by Policybazaar, an online insurance marketplace that allows consumers to manage various insurance products from multiple insurers through a single platform.

Correspondingly, the ability to manage costs only with liquid savings dropped from 32% to 24% in 2024-25. Further financial stress at the time of raising claims has gone up across all city-tiers between 2023 and 2025, with the overall increase driven largely by metros, which saw the sharpest jump of 14% to 76%. Tier-2 cities recorded the highest incidence overall at 78% while Tier-3 cities saw a 6% point rise, with 71% of claimants borrowing money or liquidating investments in 2024-25.

Customers seek transparency

The report also notes that transparency is the number one concern posed by customers from the Indian health insurance sector with clear reasons for rejection being the most demanded answer. Around 73% of those dissatisfied with rejections cited the reason as unclear, highlighting a communication gap. Customers also demanded frequent updates to cashless hospital lists, simpler claims forms, and stronger verification at purchase to avoid surprises later.

Hospitalisation frequency creates one of the widest gaps in data. Customers with a single hospitalisation report a Health Claims Exchange (HCX) of 84.5, while those with multiple hospitalisations drop to 73.2, the lowest in all segments. Also middle-aged patients (36-40 years) record a relatively steadier experience, helped by stronger current experience scores and higher intent to continue with health insurance.

The report also found that dense hospital networks alone do not guarantee a stronger claims experience and that repeated hospitalisation, metro complexity and higher reimbursement rates pull down the score because of what the claims pathway asks of them.

The mode of claims, more than any other variable, is where that burden shows up most sharply, and cashless claims is where the clearest relief is found, said the report.

Need stronger verification

As much as 39% of customers asked for stronger verification at the point of purchase, with the South leading at 44% across all regions. Most importantly conditions missed at onboarding become the ground for rejection or pushing towards reimbursement.

Customers want a transparent, streamlined, proactive insurance policy and procedure, the report found.

The report also suggests that no claim should be closed with vague terms like “not admissible”. Denial must cite the specific clause and the evidence used. Additionally, every clause must indicate a clear recourse or appeal option to empower the customer.

Suggesting that policy buying should be driven by the mandate of — verify comprehensively at purchase; honour unconditionally at claims stage; it added that industry players should conduct rigorous medical verification upfront and if a condition is not flagged during a comprehensive purchase-time check, it should not be invoked as undisclosed later.

Around 39% of customers cite strong verification at purchase as a top improvement to avoid the trauma of a later-stage rejection.

Giving insight into the health insurance ecosystem, the report states that cashless remains the easier route for customers and that its strength comes from reduced upfront burden, simpler paperwork, nearby network hospitals and faster approval movement.

Borrowing went up

Many people opt for reimbursement when cashless facility is unavailable, delayed or not worth waiting for at discharge from hospital. This becomes more stressful when the customer has to arrange for funds upfront. But this trend showed that 76% had to borrow during treatment which is up from 68% last year.

The report explains that this shows how a lack of upfront cashless support can quickly create financial pressure even if the claims are later reimbursed. The reimbursement journey is far more effort heavy and the lower score reflects the responsibility customers carry across payments, documentation, follow-ups and settlement.

Also suggesting one authorisation for full treatment — the report noted that customers with multiple hospitalisations scored poorly on the health claims experience. “For chronic cycles like chemotherapy or dialysis, the requirement for fresh pre-authorisation for every visit is an unnecessary administrative hurdle and a single-window approval should cover the clinical plan, with reverification needed only if the treatment protocol should change,’’ it said.

The survey conducted 2,228 face-to-face interviews with personal health policy holders who purchased their policy online (insurer website, aggregators, etc.) or offline (agents, banks, etc.) to assess claims process satisfaction and the reason behind it.

At 82.8 out of 100, India’s health insurance claim experience sits inside the “moderate” band. It’s a credible base, suggesting that the system holds together for most of the customers, most of the time.

Published – June 23, 2026 06:38 pm IST

Watch: Union Budget 2024: Insurance sector expectations

The insurance sector is one of India’s fast growing and key segments within the country’s financial system.

Given its sheer size, insurance is in itself an industry and makes for a strong case for reforms, continued push for regulatory changes and some tax tweaks.

We look at the expectations the insurance sector has from the Union Budget 2024, which will be presented by the Union Finance Minister, Nirmala Sitharaman, on July 23.

Presentation: N. Ravikumar

Video: Nagara Gopal

Production: Aniket Singh Chauhan