IRDAI's Proposed Insurance Distribution Reforms 2026, Explained
- IRDAI released a consultation paper on 23 September 2026. It says distributor pay grew 125% from FY23 to FY25, while the related new business premium grew only 28%.
- The paper proposes three distributor categories. Eligible entities can sell for multiple insurers. Individual sellers can sell only for their own insurers.
- It brings back commission caps by product and premium term. For long-term life products, the cap is 20% for entities and 25% for agents. Insurer expense limits fall to 12.5% for life insurers and 20% for general insurers over five years.
- The paper also limits compulsory bundling. Premiums and claims move directly between customers and insurers. Insurers recover the commission when mis-selling is proven.
- These rules are proposals. Comments are open until 31 October 2026, after IRDAI extended the original 25 October deadline. Seller tagging under the July 2026 amendments is final and starts on 1 January 2027.
- Prepare now. Compare your commission rules, seller records and payment flows with the proposals.
What IRDAI Is Proposing, and Why
On 23 September 2026, the Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper, Recalibrating Economics of Insurance Distribution.
The paper proposes changes to three things: who can distribute insurance, how much distributors can earn and how much insurers can spend. Its main concern is simple. Distributor pay grew much faster than the business it brought in.
IRDAI's numbers show the gap. Between FY23 and FY25, new business premium in a sample of the life insurance corporate agency channel grew 28%. Distributor pay on that business, including commissions, rewards and incentives, grew 125%. The sample covered about 92% of premium from corporate agents.
General insurance shows the same pattern. Premium through brokers grew 37% over the same period. Commissions on that business grew 173%. (Upstox analysis of the IRDAI paper)
IRDAI also says that badly designed incentives push distributors to sell higher-paying products instead of the products that suit the customer.
The Insurance Brokers Association of India disputes part of this reading. It says some of the increase comes from payments that insurers previously recorded under other expense categories. (Insurance Business)
The proposals cover four areas: who can distribute, how distributors are paid, how insurance is sold and the shared digital infrastructure.
Important: Everything in the paper is still a proposal. Comments now close on 31 October 2026, after IRDAI extended the original 25 October deadline. The final rules can change.
1. Who Can Distribute Insurance
The paper replaces the current intermediary types with three categories.
Insurance Distribution Entities (IDEs) bring today's entity-level intermediaries under one framework. Eligible entities can choose open architecture and sell products from multiple insurers. The paper also opens distribution to hospitals for health insurance and to non-dealer garages for motor insurance. IDEs can also offer permitted non-insurance products.
Insurance Distribution Persons (IDPs) cover individual sellers. Each IDP needs a Class XII qualification and 100 hours of training per insurance segment. IDPs work under closed architecture.
Market Infrastructure Institutions (MIIs) provide shared digital infrastructure. The paper names Bima Sugam India Federation as an example. Customers use it to find, compare and buy insurance.
So multi-insurer selling applies to eligible entities only. Individual sellers stay tied to their insurers.
2. How Much Distributors Can Earn
In 2023, IRDAI removed product-level commission caps. Insurers then worked within company-level Expenses of Management (EoM) limits and board-approved commission policies.
The paper brings caps back. Each cap depends on the product, the channel, the premium-payment term and the effort to sell and service the policy. The proposed first-year ceilings for individual life products include:
- Linked and non-linked products, premium-payment term of 10 years or more: 20% for Insurance Distribution Entities, 25% for individual agents.
- Pure-term plans with multi-year premiums: 25% for entities, 30% for agents. Renewal caps are 7.5% and 10%.
- Pure-term plans with a single premium: 7.5% for entities, 10% for agents.
These figures are ceilings, so insurers can pay less. Shorter premium-payment terms and other product types have lower ceilings. (Upstox breakdown of the life commission structure)
Business from underserved locations gets more headroom. The paper proposes an extra 10% of the applicable limit for eligible locations with a population below 10 lakh. It proposes an extra 20% for towns below 50,000 and for rural areas. For example, a 20% cap becomes 22% or 24%.
The paper also widens the definition of commission to include indirect pay, rewards, incentives and non-cash benefits. This stops payouts from moving into other categories to avoid the caps.
Lower expense limits for insurers
- Life insurers: 15% of gross direct premium income (GDPI) within two years, then 12.5% within five years.
- General insurers: from 30% of gross written premium (GWP) today to 25% within two years, then 20% of domestic GDPI within five years.
The change from GWP to GDPI matters. Compare your current expenses with the new limits on the same basis.
The phased glide path gives insurers time to adjust costs, distribution agreements and operating models. The paper also proposes published commission policies, cost audits and more disclosure from large distribution entities.
3. How Insurance Is Sold
Limits on compulsory bundling
IRDAI proposes stronger limits on compulsory bundling of insurance with loans, credit and other financial products.
Some packages remain allowed. The paper permits a combination when it gives the customer a clear benefit.
For loan portfolios, a lender can buy a group policy that covers the portfolio and pay the premium itself. Borrowers then do not have to buy cover to get the loan.
Direct flow of premiums and claims
Premiums go directly from customers to insurers. Claim payments go directly to the verified bank accounts of policyholders or nominees. These changes affect payment journeys, reconciliation and the duties of distributors and insurers.
Seller accountability
Where mis-selling is established, insurers claw back the commission. The paper also limits volume-linked and reward-linked incentives for employees of banks, NBFCs and other regulated entities that distribute insurance. The aim is to identify who made each sale and link pay to good customer outcomes.
4. Digital Infrastructure: Bima Sugam and the Public Insurance Registry
Bima Sugam becomes a Market Infrastructure Institution. It is a shared marketplace where customers, insurers and distributors meet. It does not underwrite policies.
The Public Insurance Registry (PIR) aims to give access to verified insurance information and to connect systems across the market.
Together, they can make it easier to compare, buy and service insurance. Their real effect depends on the final rules, the number of insurers that take part and the quality of the shared data.
5. One Rule Is Already Final
Seller-level accountability is already on the regulatory roadmap. IRDAI notified the Insurance Intermediaries (Amendment) Regulations, 2026 on 30 July 2026. These are final, and they are separate from the September proposals.
Registration certificates now stay valid until they are suspended, cancelled or surrendered, provided the annual fee is paid. Intermediaries with three-year registrations must follow the transition steps for a fresh certificate.
From 1 January 2027, corporate agents and insurance brokers must identify the authorized salesperson for each policy. The proposal form, policy document and certificate of insurance must record that person's identity. For direct digital sales with no individual salesperson, specified contact details of the principal officer are required instead. (Business Standard, 31 July 2026)
Keep this rule separate from the September proposals when you plan your work.
6. What Insurers and Distributors Should Prepare For
If IRDAI adopts the proposals largely as written, your distribution systems must handle more detailed rules and full traceability. Three areas need attention.
Commission calculation and reconciliation. Record the product, channel, premium-payment term, seller category and location for each policy. Include indirect incentives in your payout rules. Keep approvals, reconciliation and audit trails for every payout.
Distribution across partners and insurers. Eligible entities that work with several insurers need one consistent way to configure products, manage partner journeys and connect to each insurer's systems.
Seller identity and money flows. Capture the seller at the point of sale and carry it into every record. Assign clear owners for premium collection, claim payments, reconciliation and exceptions.
Each of these affects your workflows, commission operations and integrations, as well as your documentation.
Where technology helps
Mozart Distribution Pro supports configurable partner journeys, product setup and integration across distribution channels. Mozart ICM manages the complete commission and incentive lifecycle for insurance distribution, with rules-driven calculation and a traceable record of every payout.
These tools give you control and visibility over complex distribution. Compliance still depends on how you configure them against the final rules.
What Happens Next
IRDAI extended the comment deadline from 25 October to 31 October 2026, citing strong interest. It had received more than 650 comments by then. The Insurance Brokers Association of India had asked for an extension to late December. (Business Standard, 25 October 2026)
After the consultation, IRDAI will review the responses and issue draft regulations for another round of public feedback before it finalizes the rules. It has not announced a date for the draft regulations. Reports say IRDAI is considering 1 January or 1 April 2027 as possible implementation dates. These dates are not confirmed. (Inc42)
The direction is clear: tighter cost control, clearer accountability, structured commission limits and shared digital infrastructure.
The practical next step is to compare your current commission arrangements, sales attribution, integrations and payment workflows against the proposals. Plan for them, and keep draft provisions separate from final obligations.
Want to know what these proposals mean for your distribution setup? We can review your current systems with you and identify the areas that will need to change. Get in touch.
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