IRDAI Proposes Commission Caps: Will Insurance Get Cheaper?
IRDAI has proposed caps on insurance commissions and tighter expense limits, open for comments until 25 October 2026. What it means for your premium.
By Balaji Anbazhagan
· 6 min read
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On 23 September 2026 the insurance regulator IRDAI released a consultation paper called “Recalibrating Economics of Insurance Distribution”. It proposes limits on the commission insurers can pay agents, banks and websites, and a cap on how much of your premium insurers can spend on running costs. Shares of insurance sellers crashed the next day: PB Fintech (Policybazaar) fell 36%. Here is what is proposed, what is only a draft, and what it could mean for the premium you pay.
The short answer
- It is a draft. IRDAI is asking for comments until 25 October 2026. Nothing has changed yet, and your existing policy is not affected.
- Commission caps: for example, 5% to 20% first-year commission on life insurance depending on how many years you pay, and 15% to 20% in the first year on health insurance.
- Insurers’ running costs: life insurers would have to bring expenses down to 15% of premium within two years and 12.5% within five years.
- Aim: cut mis-selling, and reduce what you pay for distribution. Lower premiums are possible, but not promised.
- Nothing to do today except keep paying your premiums. Do not cancel a policy because of this news.
Why IRDAI is doing this
IRDAI says commissions have got out of hand:
- On first-year premiums for individual life insurance, commissions reached nearly 80% in some cases, and averaged as high as 50% outside direct and online sales.
- In a sample covering about 92% of corporate-agent premiums, new business premium rose 28% between FY23 and FY25, while what distributors were paid rose 125%, from about ₹9,580 crore to ₹21,600 crore.
High first-year commissions give sellers a reason to push whatever pays most, and to move customers to a new policy, rather than to help them keep one for years.
What is proposed
Life insurance commission caps (individual policies)
| How long you pay premiums | First-year cap: agent | First-year cap: bank, website or other entity | Renewal cap |
|---|---|---|---|
| Less than 5 years | 6.25% | 5% | 2%–5% |
| 5 years | 12.5% | 10% | 2%–5% |
| 6–8 years | 17.5% | 14% | 3%–5% |
| 9 years | 22.5% | 18% | 3%–5% |
| 10 years or more | 25% | 20% | 3%–5% |
From the sixth year, the renewal cap would rise by 0.5 percentage points every three years, up to a maximum of 7%.
Term insurance gets higher limits: for multi-year premium plans, 25% first year and 7.5% renewal for entities, and 30% and 10% for agents. Single-premium savings plans are proposed at 1%–2%, annuities at 0.5%–0.75%, and no commission at all on buying an NPS annuity.
The pattern is clear: the longer you keep paying, the more the seller can earn. Short-pay and single-premium plans, which were often sold hard, would pay very little.
Health insurance
The reported caps are 15% (entities) to 20% (agents) in the first year, and 5% to 10% on renewals and portability. Motor third-party insurance would carry little or no commission.
Extra room for rural areas
To keep insurance reaching smaller places, the draft gives extra first-year commission room: 10% more in towns of under 10 lakh people, and 20% more in towns under 50,000 people and in rural areas.
Insurers’ running costs
| Insurer type | Proposed limit on expenses |
|---|---|
| Life insurers | 15% of gross direct premium within 2 years, then 12.5% within 5 years |
| General insurers | Down from 30% of gross written premium to 20% of gross direct premium over 5 years |
Rules to stop mis-selling
- Commissions must be disclosed in a simple form.
- Suitability becomes a duty: the seller must document your needs and show the policy fits them.
- Clawback: commission can be taken back if the sale was mis-selling.
- No sales targets or rewards linked to volume for bank and NBFC staff who sell insurance.
- Each policy is linked to the individual seller, and mis-selling cases would be made public.
- Less forced bundling of insurance with other products such as loans, and no “dark patterns” on insurance websites and apps.
- Bima Sugam and a Public Insurance Registry would become shared infrastructure for comparing and moving policies.
The distributor structure would also be simplified into three types: Insurance Distribution Entities, Insurance Distribution Persons and Market Infrastructure Institutions.
What it means for you
| If you… | What could change |
|---|---|
| Already hold a policy | Nothing. Your premium and cover are set by your contract. |
| Plan to buy term or health cover | Buy the cover you need now. Waiting for cheaper premiums is a poor trade, because premiums rise with age and a health problem can make cover costlier or unavailable. |
| Buy through an agent, bank or website | Expect more questions about your needs, and a written record of why the policy suits you. Ask them to show their commission. |
| Are being offered a long-term savings plan | Ask what the commission is and what your returns would be after all charges. Compare it with a term plan plus your own investments. |
| Own shares of insurers or distributors | These shares are volatile: PB Fintech fell 36% on the day, and other insurers moved in different directions. |
Will premiums fall? Cutting commissions and expenses can lower what it costs an insurer to sell a policy, and IRDAI’s stated aim is to rationalise distribution costs. But the paper is a draft, and insurers decide their own prices. The industry warns that lower commissions could reduce the supply of low-premium policies and make insurance harder to sell in small towns. Nobody yet knows how much premiums would change.
What happens next
- Anyone can send comments to IRDAI until 25 October 2026.
- IRDAI reviews the comments and may change the proposal.
- Final rules would then be issued. Until then, current rules apply.
Analysts at Bernstein said the proposed cuts were “significantly more severe than expected”, which is why the shares of sellers fell so sharply. The move also pulled down finance stocks in the wider market on 24 September.
Frequently asked questions
Will my premium go down because of this? Not for a policy you already hold. For new policies, lower commissions could reduce prices over time, but the rules are only proposed and insurers set their own premiums.
Is the IRDAI commission cap final? No. It is a consultation paper. Comments are open until 25 October 2026 and the final rules may differ.
Should I wait to buy insurance until commissions are cut? No. Term and health cover cost more as you age, and you could be declined after a health problem. Buy what you need now.
Why did PB Fintech and Policybazaar shares crash? Sellers such as PB Fintech earn much of their income from commissions. On 24 September 2026 the stock fell 36% to ₹1,207.20, its biggest one-day fall, because the proposed caps are far below current levels.
Does this affect motor insurance? The draft proposes little or no commission on motor third-party insurance. Check the final rules for own-damage cover.
Sources
- Business Today, “Insurance commissions may fall: What IRDAI’s new distribution rules mean for policyholders”, 24 September 2026: businesstoday.in
- Upstox, “IRDAI’s new life insurance commission plan: new caps, renewal payouts and rural incentives explained”, 24 September 2026: upstox.com
- Upstox, “PB Fintech crashes 36%, Turtlemint 20% as IRDAI proposes new insurance distribution rules”: upstox.com
- PTI via Punjab Kesari, “All you need to know about IRDAI’s proposed reforms to clean up insurance sector”: english.punjabkesari.com
- TaxGuru, “IRDAI proposes distribution reforms to cut insurance costs, strengthen policyholder protection”: taxguru.in
- IRDAI, consultation papers: irdai.gov.in
This article is for general information and education, not financial, tax or investment advice. Rules and rates change; check official sources or consult a qualified professional before acting. See our disclaimer.