Irdai commission caps: Brokers to seek more time to submit feedback on Friday

Mumbai: The Insurance Brokers Association of India (IBAI) will meet the regulator on Friday to seek more time to assess the impact of the proposed overhaul of distribution rules.

In a press briefing held to outline concerns over the Insurance Regulatory and Development Authority of India’s (Irdai’s) consultation paper, representatives of several brokers said they will submit their feedback and suggestions by December instead of the current deadline of 25 October.

Eventually, the industry body also plans to approach the Union finance ministry and Prime Minister Narendra Modi, having already submitted letters to both.

Irdai released the consultation paper on 23 September 2026 and is planning to implement the final norms by April 2027. The draft proposes capping first-year commissions for distribution entities between 5% and 20% and for agents between 6.25% and 25%.

Industry pushback

The industry body’s contention stems from two key points: the clubbing of insurance agents representing insurers with independent advisors and brokers, and the lack of a global precedent for a structure that caps commissions paid by insurers to intermediaries.

“There are many ideas that are coming in (from members), but certain things that there is unanimity on are that brokers represent an identity. And we are going to be asking the regulator to respect that identity, that is one thing,” said Sumit Bohra, executive director at Unilight Insurance Brokers.

The proposed distribution architecture could blur the responsibilities of neutral intermediaries that represent consumers and corporate agents, said Pavanjit Singh Dhingra, joint managing director, Prudent Insurance Brokers and director at the IBAI.

“There is a clear difference between an agent and a broker. That has been removed. I think we need to debate whether that is in the customer’s interest,” he said, adding that historically, claims settlement for policies sold through brokers has had a higher success rate compared with policies sold directly.

The body has also sought a phased transition for brokers, similar to the glide path proposed for insurers to meet their expenses of management (EoM) caps.

Irdai has proposed a glide path to lower insurers’ overall EoM over five years. Life insurers would have to bring EoM down to 15% of premiums within two years and 12.5% within five years. General insurers need to bring their EoM down to 25% within two years and 20% within five years.

The association said it was not opposing reforms but wanted a transition period. “There is a glide path given to insurers, which we agree is very good because you don’t jump off a parachute. So, give us that glide path,” said one of the IBAI representatives.

Employment and the viability of smaller brokerages were another major concern. Ashok Jain, director at the IBAI and First Policy Insurance Brokers, said their company expected revenue to fall sharply under the proposed changes. “We think we will lose 70% of the revenue,” he said.

The impact, he said, could particularly hurt smaller businesses that rely on intermediaries for insurance. “In my opinion, MSMEs (micro, small, and medium enterprises) are the ones which are going to suffer the most,” he added, pointing to the economics of selling small-ticket policies.

The IBAI also warned of significant job losses across the distribution ecosystem. “The most conservative estimate is that we will lose about a million jobs in distribution. That’s the most conservative estimate. I think within corporate broking, we will lose between 60% and 70% of all jobs,” another one of the IBAI representatives said.

Job losses

The association’s broader concern is that tighter commission limits could make it uneconomical for brokers to service smaller customers, particularly MSMEs and customers in smaller cities, as the first services to be cut would be where the cost of customer onboarding is higher.

The IBAI’s letter to Union finance minister Nirmala Sitharaman said at least 1 million distribution livelihoods could be at risk over the proposed five-year glide path.

Brokers also questioned whether the proposed reduction in distribution costs would actually benefit policyholders through lower premiums. The IBAI’s submission argued that any cost savings should have a clearly measurable mechanism for reaching customers, in the absence of which any benefits from lower commissions are likely to be retained by insurance companies.

The IBAI has also urged the government to allow the 2023 EoM framework to run until its scheduled 2028 review, arguing that the proposed framework could revive the practices that the earlier reforms sought to eliminate.

The regulator introduced a new EoM framework in April 2023, which redefined how ceilings are calculated as a share of gross premium written: 30% for general insurers and 35% for standalone health insurers, with product-wise caps for life insurance.