24 September,2026 02:24 PM IST | Mumbai | mid-day online correspondent
Representational Image. File pic.
The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a major overhaul in distribution to make insurance distribution more transparent and improve value for policyholders.
IRDAI has issued a consultation paper on 'Recalibrating Economics of Insurance Distribution' mapping out a comprehensive framework of reforms covering insurance distribution, its structure, expenses, commissions, market conduct, transparency and leveraging digital infrastructure.
The insurance sector regulator said the primary aim is to foster a customer-centric, competitive, efficient and transparent distribution ecosystem, while enabling better and sustainable outcomes for policyholders, insurers and distributors.
"Greater transparency in product information, remuneration and distribution practices, along with appropriate safeguards against mis-selling and unfair practices, will give much greater confidence to customers," it said.
It also proposed stronger safeguards against mis-selling, including making suitability an enforceable obligation, documenting customer needs and suitability for specified life insurance sales, and maintaining an audit trail.
The reforms also seek to strengthen safeguards against compulsory bundling of insurance with other financial products and services and address mis-selling through greater accountability.
"This includes documenting customer needs and suitability, explicitly including all forms of remuneration, direct or indirect, monetary or nonmonetary, within the definition of commission for regulatory purposes, and prohibiting volume-linked or reward-linked incentives for bank and NBFC staff selling insurance," it said.
The proposals also include linking the identity of the individual with the policy sold, placing information on mis-selling incidents in the public domain, and providing for commission claw-back in cases of mis-selling.
"Insurers and large distribution entities would be required to disclose commission policies and structures in a simple and accessible manner, while specified commercial policies would carry commission disclosures," it said in a statement.
This would enable customers in being aware of the distribution costs built into the pricing, it added.
It seeks to replace the existing complex and fragmented architecture with three broad categories of distribution entities namely Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs).
A clearer distinction between open and closed distribution architectures would promote competition and reduce regulatory arbitrage and operational constraints, it said.
The regulator said the reforms are intended to simplify the distribution architecture making it more customer facing where customers easily understand who they are buying the policy through, it said.
IRDAI has also proposed changes to the Expense of Management framework to reduce distribution costs and support affordability.
"Expense of Management (EoM) framework is proposed to be recalibrated through lower limits with a phased glide path," it said.
"The proposed reduction in EoM is intended to lower the overall cost of insurance, thereby expanding the risk pool available in general insurance and enhancing returns to policyholders in life savings products. The phased approach seeks to balance improved value and affordability for policyholders with the financial sustainability of insurers, while progressively improving cost efficiency across the sector," it added.
IRDAI is also looking at strengthening the digital infrastructure and said digital and technology-enabled channels will improve ease of purchase and servicing, expand consumer choice and facilitate wider access to
insurance, including among currently underserved segments.
"Market Infrastructure Institutions (MIIs) for insurance as digital, pull-based alternatives for insurance distribution, with Bima Sugam identified as one such infrastructure," it said.
It also proposes to leverage the Public Insurance Registry (PIR) to support transparency, comparison, portability and operational efficiency.
