Under the proposal, hospitals can distribute health insurance products by registering as Insurance Distribution Entities (IDEs), subject to certain safeguards and lower commission limits. The consultation paper said opportunities for distribution of insurance products should be expanded as part of the proposed simplification of the insurance distribution architecture.
The proposal is part of a broader set of distribution reforms aimed at improving consumer outcomes, strengthening competition, enhancing operational efficiency and enabling sustainable growth in the insurance sector.
The regulator has proposed simplifying the existing distribution architecture, which currently has multiple categories of distributors with different entry requirements, capital requirements, product ranges, fee structures and regulatory obligations. The proposed framework seeks to bring similar activities under a common, activity-based framework.
Under the proposed safeguards, distribution entities and their personnel would have to follow requirements relating to training, certification, customer information and suitability analysis. The consultation paper proposes that persons selling insurance assess customers’ insurance needs and carry out suitability analysis before offering a product.
The paper also proposes that distributors should offer products that are suitable for customers rather than products that entail higher commissions.
The move comes against the backdrop of concerns raised in the consultation paper around rising distribution costs and commission-led insurance sales. The regulator said commissions have increased significantly following the removal of commission caps in 2023, while the existing expense framework has not adequately controlled distribution costs.
The consultation paper proposes hard caps on commissions within revised expense limits, along with stronger regulatory oversight. It also proposes that commission levels should be linked to the complexity of products and the effort required to sell them.For health insurance, the proposed commission framework says renewals of products with high demand and policyholder awareness should have much lower commissions than first-time sales. Health insurance is specifically cited as an example. The paper also proposes discouraging commission-led portability of health or motor insurance policies.
Auto garages could also sell motor insurance
The proposed expansion of the distribution network is not limited to hospitals. Automobile garages that are not dealers and provide repair services can sell motor insurance products by becoming associates of an insurer, according to the consultation paper.
At present, the regulator has highlighted high commission rates and limited transparency in motor insurance distribution. The paper said average commission rates in motor insurance are 24%, with a range of 13% to 50%.
OEM brokers and Motor Insurance Service Providers (MISPs) have a 30% share of the new and old vehicle market combined and receive an average commission of 24%, with the maximum going up to 31%. During FY25, these channels generated ₹29,000 crore in premium and were paid almost ₹7,050 crore as commissions.
The regulator said motor insurance premium grew by around 34% between FY23 and FY25, while motor commission grew by around 259%.
The proposed reforms seek to reduce layers in distribution and promote digital purchases, while aligning commissions more closely with the effort involved in selling insurance.