“When it comes to this consultation paper, I would say it’s radical in many respects,” Khara said of the proposals’ scope.
The Insurance Regulatory and Development Authority of India’s latest consultation paper proposes a broad overhaul of how insurance is sold in the country. It includes lower expense of management limits for insurers, tighter commission caps, and new transparency requirements for policyholders. Khara chaired IRDAI’s earlier panel on insurance reform, though he was not part of drafting this specific paper.
Khara addressed a Bernstein estimate that the rules could cut earnings at PB Fintech, the largest insurance distributor by scale, by 20-25%.
“My sense is what Bernstein has mentioned, maybe it might be the outcome in the immediate term, but I would say that in the medium to long-term, this is something which will lead to significant scale up for the distributors also,” Khara said.
Khara pointed to the mutual fund industry as a precedent. Assets under management there grew from roughly ₹16 lakh crore to ₹81 lakh crore even after trail commissions replaced upfront payouts, he said, arguing that rising volumes offset lower per-transaction earnings over time. He expects insurance distribution to follow a similar path as reach expands beyond large cities.
One proposal requires insurers to disclose the commission paid on any policy with a sum assured above ₹50 crore, directly in the policy document. General insurers currently allowed to spend up to 30% of premiums on expenses will need to bring that down to 25% within two years and 20% within five years.
“There is a glide path given, indicating that many of the general insurers are unable to meet the 30% expense of management cap even, but there the glide path has been given to bring it down to 25% in 2 years and 20% in 5 years,” Khara said. He added that insurers may need to outsource back-office functions to manage costs, similar to the role Registrar and Transfer Agents play in the mutual fund industry.The paper also changes how expense limits are calculated, using Gross Direct Premium Income rather than Gross Written Premium. This strips out reinsurance premiums from the base insurers can spend against, tightening the cap in practice.
Khara said IRDAI has tried to protect distributor income within the new framework by allowing distributors to sell other financial products alongside insurance. He added that proposals such as Bima Sugam, an industry-wide digital marketplace, and insurer-run marketplaces are meant to lower distribution costs while expanding reach, particularly outside large cities. The paper also proposes commission rationalisation that could benefit distributors in upcountry locations, and lower third-party motor premiums for new vehicles.
On whether the proposals will survive the consultation process in their current form, Khara said IRDAI has shown openness to industry feedback, and that insurers will need to present their case on where the glide path timelines can shift. He added that insurers selling long-duration, high-persistency life policies stand to gain more under the new structure, since distributor earnings would grow with how long a policy stays active rather than concentrating at the point of sale.
For the full interview, watch the accompanying video
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