IRDAI’s draft commission structure The Insurance Regulatory and Development Authority of India (IRDAI) has circulated a consultation paper that proposes new ceiling limits on commissions paid to life‑insurance distributors. The limits differ according to the policy’s premium‑payment term (PPT) and whether the distributor is an agency or a corporate entity.
Tiered caps based on payment term - **Premium term < 5 years** – First‑year commission capped at **5 %** for distribution entities and **6.25 %** for agents. - **Five‑year term** – Caps rise to **10 %** (entities) and **12.5 %** (agents). - **Six‑to‑eight‑year term** – Caps of **14 %** and **17.5 %** respectively. - **Nine‑year term** – Caps of **18 %** and **22.5 %**. - **Ten years or more** – Highest caps of **20 %** for entities and **25 %** for agents.
Renewal commissions are proposed to be markedly lower than first‑year payouts, reinforcing the regulator’s intent to discourage a “new‑business only” mindset.
Special treatment for single‑premium and tax‑advantaged products The paper also calls for reduced commissions on products that receive tax benefits or involve a single premium: - **Individual savings policies (single premium)** – 1 % (entities) / 2 % (agents). - **Pure‑term policies (single premium)** – 7.5 % (entities) / 10 % (agents). - **Multi‑year term policies** – First‑year caps of 25 % (entities) / 30 % (agents) with renewal commissions of 7.5 % / 10 %.
Rationale behind the proposal IRDAI states that the commission structure should “incentivise distribution persons and entities to nudge policyholders to persist with the multi‑year payment plans instead of incentivising first year payment.” By making commissions all‑inclusive—covering incentives, awards, expense reimbursements and non‑cash benefits—the regulator aims to bring transparency and curb excessive remuneration that can inflate policy costs.
Industry implications If adopted, the caps could compress distributor earnings on short‑term and single‑premium products, potentially prompting insurers to redesign pricing or shift focus toward longer‑term plans. Agents and corporate distributors may need to adjust sales strategies, emphasizing policy persistence rather than rapid acquisition.
Next steps The consultation paper is open for stakeholder feedback. IRDAI will consider comments before finalising the rules, which are expected to be incorporated into the next set of life‑insurance regulations.
--- *The information above is based on IRIRDAI’s consultation paper and reflects the regulator’s current proposals.*