13/01/2026
The Insurance Regulatory and Development Authority of India (IRDAI) has begun a series of coordinated steps to bring commission payments to insurance agents and intermediaries under tighter control, following a sharp rise in distribution costs and multiple instances of insurers breaching prescribed expense limits.
The developments, which have unfolded over the past year, point to a clear regulatory shift aimed at protecting policyholders, curbing mis-selling, and restoring cost discipline in the insurance sector.
Rising commissions trigger regulatory concern
The background to the current action lies in the financial years 2024 and 2025, when commission payouts by insurers rose sharply across both life and non-life segments. According to IRDAI data, life insurers paid total commissions of around ₹60,800 crore FY 2025, an increase of nearly 18 per cent compared to the previous FY. In the non-life segment, commission expenses rose to ₹47,266 crore in FT25 from ₹39,601 crore in FY24.
This increase in commissions contributed significantly to higher overall expenses of management. Under the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024, insurers are required to operate within specified expense limits based on the nature of products, premium-paying terms, and the duration of business. These limits are meant to ensure that excessive costs are not passed on to policyholders through higher premiums.
By late FY2025, IRDAI identified that several insurers had exceeded these limits.
23 insurers asked to explain expense breaches
As reported by The Hindu Business Line on January 9, 2026, the regulator has sought explanations from a total of 23 insurers for overshooting expense norms. These include eight life insurers and 15 non-life insurance companies.
According to sources cited in the report, IRDAI has asked the insurers to clarify how the limits were breached. The insurance regulator is currently examining the submissions received and is following a detailed, case-by-case procedure before deciding on any penal action.
A source familiar with the process said the scrutiny would take time, as insurers are given a hearing and each case is evaluated individually. The regulator’s concern is not limited to technical non-compliance alone. Officials are also worried that unusually high commissions may point to aggressive sales practices and potential mis-selling, an issue that has troubled the insurance industry for years.
IRDAI data shows that in FY25, eight out of 25 life insurers exceeded permissible expense limits. The industry’s gross expenses of management stood at ₹1.38 lakh crore, accounting for 15.6 per cent of total gross premium. In the non-life segment, 15 insurers were found to be non-compliant with expense norms.
Also Read: How Delays at Insurance Ombudsman Offices Hurt Policyholders
Legislative changes strengthen IRDAI’s hand
While the expense breaches brought immediate regulatory attention, a more significant change came through amendments to the Insurance Act in 2025 under the “Sabka Bima Sabki Raksha” framework.
The amendments gave IRDAI explicit statutory powers to regulate commissions, remuneration, and rewards paid to insurance agents and intermediaries through subordinate regulations. Earlier, the regulator relied largely on overall expense caps and board-approved policies of insurers. The new legal framework allows IRDAI to directly prescribe limits and structures for commissions if it considers such action necessary in the interest of policyholders.
This legislative change marked a turning point, enabling the regulator to move from indirect oversight to more direct control over distribution costs.
Insurers begin work on new commission frameworks
Following the amendment to the Insurance Act, insurers began preparing for tighter regulation. In December 2025, The Economic Times reported that insurance companies had started internal work on revising their agent fee and commission frameworks.
Industry bodies, including the Life Insurance Council, set up committees to deliberate on new compensation models. Discussions included staggered commission payouts, tighter clawback provisions, and linking incentives more closely to policy persistency and service quality rather than just new business volumes.
Insurers acknowledged that the earlier commission-heavy models, while effective in driving sales, had contributed to rising costs and regulatory risk. At the same time, concerns were raised about the potential impact of abrupt changes on agent livelihoods and sales momentum.
IRDAI prepares draft rules on commissions
In early January 2026, reports indicated that IRDAI was preparing to take the next formal step. According to an exclusive report by ET Now, the regulator is set to release draft rules on insurance commissions and rewards shortly.
The draft rules are expected to outline how commissions and incentives can be structured across different distribution channels. These would be placed in the public domain for stakeholder consultation before being finalised. Sources indicated that the new framework could come into effect from April 1, 2026.
The move aligns with concerns raised not just by IRDAI but also by other regulators. The Reserve Bank of India, in its Financial Stability Report, has flagged rising distribution and operating costs in insurance as a potential risk, warning that such costs could affect affordability and long-term stability.
Industry divided on the way forward
Industry reactions to the proposed regulatory tightening have been mixed. Some insurers believe stricter commission controls are necessary to improve consumer outcomes and restore trust in insurance products. They point to the mutual fund industry, where lower and more transparent commissions have reduced mis-selling over time.
Others argue that the current expense regulations introduced in 2024 are still new and that better compliance, rather than fresh rules, may be sufficient. A senior executive of a private life insurer told HT Business Line that while radical regulatory changes are an option, strict adherence to existing norms could address many of the regulator’s concerns.
What lies ahead
IRDAI is expected to complete its scrutiny of FY25 data by the second quarter of the next financial year. With 74 registered insurers currently operating in India, including eight public sector companies, the regulator’s actions are likely to have wide-ranging implications for pricing, distribution strategies, and agent compensation.
The sequence of events i.e. from rising commissions and expense breaches - to - legislative empowerment, industry preparation, and impending draft rules ... signals a clear regulatory intent. IRDAI appears determined to ensure that commission structures do not undermine policyholder interests or fuel mis-selling, even if it means reshaping long-established distribution practices.
For insurers, agents, and customers alike, the coming months are likely to define a new phase in how insurance products are sold and priced in India.
Link to article - https://iadvisor.in/irdai-tightens-grip-on-insurance-commissions/
IRDAI is tightening control on insurance commissions after rising payouts led to expense breaches, higher costs and concerns over mis-selling by insurers.
