The consultation paper proposes changes to commissions, remuneration and distribution arrangements across insurance segments. If the proposals are eventually implemented, insurers and intermediaries may have to reassess their products, pricing and distribution models.
For policyholders, the key question is whether lower distribution costs will eventually translate into lower premiums, and whether changes in distribution economics could affect the availability and choice of insurance products.
Could insurance premiums come down?
Nilesh Sathe, former member of IRDAI, said insurers may have to revisit their existing products if distribution costs decline.
“From insurers point, that is manufacturers point of view, obviously they will have to come out with new plans with lower premium rates, because if your distribution cost has gone down, then the benefit should pass on to the customer,” Sathe said in an interview with CNBC-TV18.
Sathe said existing products are based on the present distribution structure and that insurers would probably have to modify and realign them with the new guidelines if they are issued. He also said products may have to be withdrawn and relaunched at lower cost.
That, however, does not mean an automatic reduction in premiums for people who already hold policies.
Any change would depend on insurers revising their products and pricing after the final regulatory framework is known.
Alok Rungta, MD & CEO of Generali Central Life Insurance, said insurers are still evaluating the proposals and their implications for the broader distribution ecosystem. He said the industry would seek further clarity on how the framework balances distribution efficiency with quality advice, long-term customer servicing and wider insurance penetration.
Could lower distribution costs affect low-ticket policies?
While lower distribution costs could potentially create room for insurers to rework pricing, the impact may not be uniform across products.
Indraneel Chatterjee, COO and Co-Founder of InsuranceDekho, cautioned that lower-value products could become harder to distribute if remuneration falls sharply. He cited two-wheeler insurance as an example, saying a 5% commission on an own-damage premium of ₹800 would amount to about ₹40 at the distribution-entity level, before the economics of the point of sale person are considered.
Chatterjee said this could make some low-premium policies less attractive for distributors and potentially affect insurance availability in underserved markets. He also raised concerns about the economics of third-party motor insurance if distributor commissions are removed.
His comments represent the industry’s concern about distribution viability and do not establish that premiums will rise or that coverage will become unavailable if the proposals are implemented.
What about customer choice?
Chatterjee also raised a concern around the potential impact on product choice. He said the proposed differential commission structure for distributors offering multiple insurers versus those tied to a single insurer could influence how distributors structure their businesses.
According to Chatterjee, distributors could align with a single insurer if the economics favour that model, potentially reducing the number of options available to customers.
Amit Goel, Director at Equirus Raghnall Insurance Broking, offered a different emphasis, saying the proposed reforms could push the industry towards more value-led distribution.
He said the proposed effort-based commission structures and expense-management changes could make insurers and intermediaries focus more closely on acquisition costs, productivity, renewal quality and servicing efficiency.
“For customers, greater transparency and accountability should improve suitability and trust,” Goel said.
He added that the changes could encourage brokers to move from volume-led distribution towards advisory services, including risk assessment, programme structuring, claims support and ongoing risk advisory.
What could happen to motor insurance?
The motor insurance segment could see some of the more visible changes.
Shailaja Lall, Partner at Shardul Amarchand Mangaldas & Co., said the consultation paper proposes capping remuneration for new-vehicle motor insurance at nil for third-party premium and 5% for own-damage and related covers for distribution entities.
She said the proposals could significantly affect automobile dealers, OEM-linked brokers, insurers and other motor insurance distributors by compressing upfront distribution margins.
The paper also proposes changes to the existing motor insurance distribution framework, including a broader Insurance Distribution Entity regime and greater use of digital channels such as Bima Sugam.
For policyholders, Lall said the impact on product choice and seamless customer service would need to be examined carefully. The proposals also seek to separate insurance purchase from other dealer relationships, including by preventing a dealer from denying cashless repair merely because a customer purchased insurance elsewhere.
Could banks and distributors pass on the impact?
The proposed changes could also affect bancassurance and other intermediary-led distribution.
Vinit Bolinjkar, Head of Research at Ventura, said the proposals could put pressure on insurers and distributors that depend heavily on high-cost distribution channels. He also flagged restrictions on loan-linked insurance bundling, which could affect distribution volumes and fee income for banks.
For customers, however, a reduction in commissions does not automatically translate into an equivalent reduction in premiums. The eventual pricing impact would depend on insurers’ product economics and pricing decisions.
Sathe said individual agents may be less affected because their remuneration is linked to the effort involved in selling insurance, while banks and brokers could initially see pressure on fee-based insurance income if premium rates decline.
What should existing policyholders expect?
For now, existing policyholders should not assume that their current premiums will automatically fall because of the consultation paper.
Sathe’s view is that insurers may need to modify existing products and potentially relaunch them at lower costs if the proposed changes are implemented. Whether and when those changes reach customers will depend on the final regulations and the product-level decisions taken by insurers.