Regulatory Reset for Insurance Distribution
The Insurance Regulatory and Development Authority of India (IRDAI) has released a consultation paper proposing a significant restructuring of insurance distribution economics. The draft regulations aim to lower Expense of Management (EoM) limits and introduce product- and channel-specific commission caps to reduce distribution costs and enhance value for policyholders.
The proposal outlines a five-year glide path for compliance. For life insurers, the EoM ratio is targeted to decrease to 15 percent by FY29 and further to 12.5 percent by FY32. General insurers are expected to bring their EoM down to 25 percent by FY29 and 20 percent by FY32. Additionally, the regulator proposes shifting the calculation basis for general insurers from Gross Written Premium (GWP) to domestic Gross Direct Premium Income (GDPI), while life insurers will calculate EoM as total expenses as a percentage of total premium.
Current Compliance Landscape
An analysis by IIFL Capital of listed insurers indicates a sharp divide between public sector giants and private players regarding current compliance levels. Only three companies—LIC, SBI Life Insurance, and New India Assurance—are already below the proposed FY29 EoM ceiling.
In FY26, LIC reported an EoM ratio of 11.9 percent, well below the 15 percent target. This was based on gross commissions of Rs 24,440 crore and total operating expenses of Rs 39,510 crore against gross premiums of Rs 5.37 lakh crore. SBI Life recorded an EoM ratio of 10.6 percent, with gross commissions of Rs 4,496 crore and operating expenses of Rs 6,226 crore on gross premiums of Rs 1.01 lakh crore.
New India Assurance, the only general insurer in the compliant group, reported an EoM ratio of 21.7 percent. This figure is derived from gross commissions of Rs 4,427 crore and operating expenses of Rs 5,566 crore on gross direct premium income of Rs 46,024 crore, against the proposed FY29 limit of 25 percent.
Challenges for Private Insurers
The gap between current performance and proposed targets is considerably wider for several private insurers. Among life insurers, Tata AIA had an EoM ratio of 26.7 percent in FY26, followed by Bharat Life Insurance Company (BLIC) at 25.9 percent and Max Life at 25.1 percent. These figures stand in contrast to the proposed FY29 ceiling of 15 percent.
In the general insurance segment, the disparity is even more pronounced. Go Digit recorded the highest EoM ratio at 40.5 percent, followed by Acko at 38.7 percent and Aditya Birla Health at 37.9 percent, compared to the proposed FY29 limit of 25 percent.
IIFL Capital noted that these EoM limits may be difficult for general insurers, specialized health insurers, and smaller players to achieve. While lower commissions and operating expenses could improve insurer profitability or allow for more attractive pricing, the report warns that such reductions could simultaneously diminish distributors' incentives to sell insurance products.
Broader Regulatory Changes
Beyond EoM limits, the consultation paper proposes hard commission caps across various products and channels. It also includes restrictions on the compulsory bundling of insurance with loans and mandates greater disclosure of distributor remuneration. The regulator aims to tighten the treatment of reinsurance-related payments and increase cost-audit requirements.
Ashish Teni, Senior Specialist in Insurance & Reinsurance at Trilegal, described the paper as a "considered recalibration of the economics of insurance distribution." He emphasized that the final framework must balance regulatory intent with commercial viability, ensuring the distribution ecosystem remains competitive and efficient.
The proposal is currently under consultation, with stakeholder feedback invited until October 25, 2026.