India’s insurance for all vision depends on how we reform distribution

The Insurance Regulatory and Development Authority of India (IRDAI) has set itself the ambition of insuring every citizen by 2047.

The intermediary network sits at the heart of this vision, recognised as the primary mechanism for not just awareness on insurance, but also for such awareness to transpire into coverage amongst underserved communities.

For millions of first-generation insurance buyers in tier 2 and tier 3 cities, the agent or broker at their doorstep is their only meaningful point of contact with the insurance system.

The 2024-25 IRDAI Annual Report records that the agent network has grown 11% year-on-year to 54.46 lakh professionals in March 2025, reflecting the need and capacity to strengthen the distribution network.

This emphasis on last‑mile engagement is increasingly reflected in how insurers are building their distribution strategies.

Large private insurers continue to deepen their on‑ground presence, with HDFC Life steadily expanding its agency network, particularly in tier 2 and tier 3 cities, and insurers such as ICICI Prudential Life and Aditya Birla Sun Life also scaling up their individual agent base.

Together, these trends underline the continued centrality of human‑led distribution to expanding insurance access beyond metros.

Beyond coverage and penetration, the intermediary ecosystem also plays a significant socio-economic role.

The scale of the agent and intermediary workforce underscores its contribution to employment generation and self-sustaining livelihoods, particularly outside metropolitan centres.

Ensuring the economic viability of this network is therefore not a narrow industry concern, but a prerequisite for advancing the national Insurance for All vision.

It is in this context that IRDAI’s reported consideration of reintroducing product-level caps on commissions earned by intermediaries, a mechanism set aside in April 2023 in favour of the more flexible Expense of Management (EoM) framework, warrants careful examination.

The repivot towards capping insurance commissions is not without weight. IRDAI report records that total commission outgo in the life insurance sector rose 18% year-on-year, against a premium growth of only 6.73%, signifying that the cost of distribution is rising nearly three times faster than the volume of insurance being sold.

Parallelly, mis-selling has also been recognized as a rising concern. This combination of escalating distribution costs and mis-selling due to product-linked incentive structures has brought commission capping back to the center of the regulatory agenda.

It must be noted that sustaining the agent network, particularly to reach rural areas, requires heavy upfront costs.

Expenses towards education, acquisition, and onboarding of policyholders all precede the first premium.

A commission reduction then reduces the economic viability of this job role most sharply in tier 2 and 3 cities.

Low premium ticket values and high customer acquisition costs add to the revenue stress.

Income compression at the base of this pyramid will not be absorbed. It will trigger exit from exactly the geographies where sustained distribution presence is most needed.

Further, commission escalation is not a sector-wide phenomenon.

Based on IRDAI data, LIC’s commission declined by 2.5% in FY2024-25, i.e., after the commencement of the new EoM framework. In contrast, private life insurers recorded a 38.8% surge in commission expenses.

While over 93% of new policies in LIC are sold by individual agents, banks are the driver of new premiums in private insurance, bringing in nearly half of the business.

Other distribution channels like brokers, and web aggregators constitute only 0-6% in both public and private sectors.

A uniform product-level cap does not address this asymmetry. It applies equally to brokers and agents who hold no equivalent leverage, effectively penalising the broader intermediary ecosystem.

The rise in commission costs should also be read in light of regulatory reclassification.

Prior to 2023, intermediary payments were reported across separate heads, i.e., commission, remuneration, and rewards.

Subsequent regulations consolidated these under a single commission definition, meaning expenditure previously recorded elsewhere now appears within the commission line.

A portion of the apparent increase may therefore reflect reclassification rather than a material escalation in distribution payouts.

International experience suggests that effective responses to commission-related concerns in insurance markets have tended to focus on conduct-based governance.

In the United Kingdom, the Financial Conduct Authority’s (FCA) Retail Distribution Review banned commissions on investment products — an experience that appears to have contributed to a significant advice gap, with advisory participation falling and access increasingly concentrated among higher-income consumers.

Notably, the FCA did not extend similar restrictions to protection products, where commissions were retained and market outcomes have remained broadly stable.

Singapore’s Monetary Authority takes a different approach, capping first-year life insurance commissions at 55% of premiums with the balance deferred, while linking intermediary remuneration to conduct metrics such as suitability and disclosure quality.

The United States relies on competitive dynamics, disclosure obligations, and suitability standards to discipline distribution costs rather than prescribed numeric limits.

Across these markets, the direction of regulatory thinking has been toward stronger accountability frameworks.

India’s experience with digital payments adoption also offers a useful reference point. Rural reach through UPI was achieved through infrastructure investment, simplified onboarding, and targeted incentives that made participation economically viable at low transaction values.

A comparable approach for insurance will be leveraging the Bima Sugam platform as a low-cost digital distribution infrastructure, alongside tech-enabled brokers, PoSP networks, and other digital distribution partners that combine assisted selling with technology to reduce acquisition costs and improve last-mile reach.

Economic Survey 2025-26 notes that greater use of technology-enabled distribution models is essential to address high distribution costs and expand insurance coverage beyond existing customer pools.

Ultimately, the path to deeper insurance penetration runs through the intermediary network, and with the right regulatory design, the two ambitions of cost efficiency and distribution reach are entirely compatible.

Calibrated reform that protects distribution economics in underserved markets, directs intervention where escalation is highest, and enables digital infrastructure to complement human reach is how India can achieve its insurance vision.

Disclaimer: The author of this article is the president of Insurance Brokers Association of India (IBAI). Views and recommendations are strictly personal and not of Mint. This article is for educational purposes only and does not constitute investment advice. We advise investors to consult with certified experts before making any investment decisions.