India's big insurance overhaul will test demand

Max Financial Services

29/09/2026 04:24

The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.
By Ujjaini  Dutta
BENGALURU, Sept 29 (Reuters Breakingviews) - Making something cheaper is usually a decent starting point to boost demand. Less than one year after opening up the market to 100% foreign investment, India's insurance regulator has proposed unexpectedly sweeping and severe cuts to commission rates agents and distributors, including banks, can charge. That may improve the industry’s health but the bigger challenge is convincing Indians they need insurance.
Reform is needed. In a two-part consultation paper published last week, the Insurance Regulatory and Development Authority of India laid out plans to reverse its earlier move to scrap commission caps. Since that 2023 decision, distributor remuneration has outpaced premium growth by around four times, and expense ratios have risen to levels seen a decade ago. Insurance penetration, meanwhile, remains stuck at a measly 3.8% of GDP.
The new proposals are complex but in essence they would cap payouts, link them to product complexity and spread life insurers' commissions beyond a policy's ‌first year. For example, in health insurance, commissions would be capped at 15% of first-year premiums and 5% on renewals, compared to the current over-30% fee. Similarly, for life insurance, brokers and banks can earn up to 20%, half the current rate.
Distributors will suffer: shares of PB Fintech PBFI.NS - an online insurance marketplace and the poster child of distribution - shed nearly 40%, equivalent to $3.5 billion of market value. At L&T Finance LTFL.NS, the drop was 9%. The non-bank relies on insurance commissions for 26% of its annual pre-tax profit. Yet an up to 7% drop in the shares of insurers including HDFC Life HDFL.NS, ICICI Life ICIR.NS, Canara HSBC Life CANR.NS and Max Financial Services MAXI.NS, for whom commission is a cost, implies premiums will also suffer to a lesser extent.
There is clear room for the regulator to tweak its proposals based on feedback. PB Fintech, for example, is a champion of financial literacy and supporting customers to make informed decisions; analysts at Kotak argue that the company could push IRDAI to include incentives benchmarked to quality parameters.
If affordability is a big barrier to stronger uptake, IRDAI's proposals should help. But many Indians still look to insurance for savings rather than protection. That means it competes with the growing popularity of mutual funds and the stock market as a place to park household wealth. That may also explain why the number of individual life policies have stagnated over the last decade despite rising incomes. 
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CONTEXT NEWS
India's insurance regulator on September 23 proposed a sweeping overhaul of commission rules in a two-part consultation paper titled ‘Recalibrating Economics of Insurance Distribution’. 
Proposals released by the Insurance Regulatory and Development Authority of India would cap payouts, link them to product complexity and spread life insurers' commissions beyond a policy's ‌first year. 
For health insurance, commissions would be capped at 15% in the first year and 5% on renewals, compared to fees over-30% currently charged by distributors. In life insurance, commissions for banks and brokers could stand at 5% to 20% of the first-year premium, ‌compared to more-than-40% currently. 
The IRDAI's proposal also says that third-party insurance on new vehicles would carry no commissions compared to current rates of around 25% to 50% in the motor insurance segment. The regulator has set an October 25 deadline for feedback. 

(Editing by Una Galani; Production by Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on DUTTA/ujjaini.dutta@thomsonreuters.com))