Report shows commission costs rising faster than premium growth

India’s general insurance industry is witnessing sustained growth, but a new report by consulting firm Praxis Global Alliance has flagged rising reliance on commissions and intermediary-led distribution as a structural concern for underwriting discipline and long-term profitability.

The observations come amid broader concerns raised by the Insurance Regulatory and Development Authority of India (IRDAI) over the sector’s high-cost structure and continued dependence on traditional distribution channels.

According to the report, around 80% of insurance business in India is still sourced through intermediaries, including agents, brokers, bancassurance partnerships and OEM channels.

This has resulted in intense competition among insurers for distribution access, with commissions playing a key role in business acquisition.

The report noted that commission expenses

have grown faster than premium income across private insurers, public sector insurers and standalone health insurers following the implementation of the revised Expense of Management (EOM) framework in 2023, which shifted to portfolio-level expense flexibility.

Industry participants cited in the report indicated that insurers are using certain low-margin segments such as group and crop insurance to manage expense structures, while allocating resulting flexibility towards higher commissions in retail lines like motor and health insurance.

On profitability, the report said combined ratios across insurers remain above 100%, indicating continued underwriting losses. It estimated underwriting losses at about 13% of net written premium, while investment income contributes around 21% of net written premium, suggesting continued reliance on investment returns for overall profitability.

The report also highlighted that insurers do not directly control customer relationships in most cases, as intermediaries manage acquisition, renewals and engagement. It described this as resulting in recurring acquisition-like costs even for existing customers.

The report added that direct-to-consumer (D2C) insurance models could offer potential efficiency improvements by reducing distribution costs and improving retention. It cited global insurers such as Progressive Corporation, GEICO and Allstate, which have built large direct distribution models over time.

However, it also noted that India’s market continues to rely heavily on intermediaries due to product complexity and the role of advisors in servicing and claims support, suggesting that any shift toward direct models is likely to be gradual.