Irdai’s concern about rising distribution costs is understandable, but its proposed solution risks harming the competition it seeks to promote. A better approach would be to link commission to the extent of services rendered to the customer. This matters beyond the distribution market.
The Insurance Regulatory and Development Authority of India’s (Irdai) consultation paper, released in September 2026, aims to accelerate the growth of the insurance sector, strengthen policyholder protection, ease business for insurers and intermediaries, and make regulation more transparent.
Significantly, Irdai also aims to strengthen competition, which is in line with the Competition Act, 2002 and also in sync with the Draft National Competition Policy, 2011. This calls for a level playing field and recommends that the government should not impose more restrictions on markets than necessary.
Same policies, different rules for open and closed distributors
The reforms propose to replace the existing eight types of distributing firms and nine types of individual sellers, each with different rules, with three channels: Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs). An IDE may sell for many insurers (open architecture) or for one (closed architecture). IDPs of insurers can sell for only one insurer in each category.
It is argued that the proposed measures – easier entry and allowing distributors to sell non-insurance products – will open up the market. The rule of ‘same activity, same regulation’ will treat distributors fairly.
However, some of the proposed reforms do not seem to be in sync with the intended objectives or with the principle of ‘competition on merits’. For example, a distributor in open architecture, such as a broker, can sell policies of multiple competing insurers, as it is not subject to exclusivity obligations. Such a broker can instantly provide a comparative analysis of premium rates and claim ratios to a potential customer, enabling them to take a well-informed decision.
A distributor in closed architecture, such as an insurer’s own agent, can sell for only one insurer in each category. Although both sell the same policies to customers, the paper proposes to treat them differently and in a potentially discriminatory manner.
Commission caps that depend on who sells, not what is sold
Brokers and web aggregators, which follow open architecture, would have lower commission caps than an insurer’s own agents for almost every product. On retail health insurance, a broker may earn up to 15% in the first year and 5% on renewal, while an agent may earn up to 20% in the first year and 10% on renewal. Irdai is concerned that open-architecture distributors may push customers to switch to another insurer that pays them better.
At this juncture, it is worthwhile to consider competition in upstream as well as in the downstream markets. Brokers operate in the vertical market, and since they represent more than one insurer, they can instantly provide comparative pricing and claim ratios of each insurer, enabling the customer to take an informed decision. An agent can only port into its own insurer. Lowering switching barriers increases market rivalry, forcing insurers and their agents to offer lower prices and better services.
An insurer that knows its agent cannot migrate the business elsewhere faces less competitive pressure, which may lead to complacency.Another interesting aspect is that currently, as per Irdai’s own data, agents bring in 30% and brokers bring in 33% of general insurance premium. This clearly shows that both verticals are fiercely competitive and differential compensation will create an uneven playing field that can chill the competition.
The caps also vary according to the entity’s legal form. A motor dealer that is a company must register as an IDE and may earn up to 5% on owndamage cover for a new vehicle. A dealer that is a sole proprietorship may instead become an associate of one insurer, and earn up to 10% on the same cover. The same work earns double the commission, only because of how the dealership is set up. Dealers will tend to tie up with one insurer, which reduces customer choice at the point of sale and goes against Irdai’s own principle of ‘same activity, same regulation’.
Why neutral platforms need to be neutral for distributors too
When a health policy is renewed, a broker may earn up to 5% and an agent up to 10%. Interestingly, the service of renewal is the same or similar, yet the broker will be disincentivized without justification. It will have a ripple anti-competitive effect on both upstream and downstream markets.
Irdai proposes that MIIs, the not-for-profit platforms set up by insurers, may get ‘preferred distribution status’, with fees much lower than current commission rates. It expects insurers to offer products at lower rates on MIIs, while IDEs may not insist on the same price across channels. Motor dealers must display the MII option with a QR code and inform new-vehicle buyers about it, and Irdai asks whether the MII option should be compulsorily offered to them.
MIIs would therefore compete with brokers and web aggregators for the same customers, but on better terms set by regulation, not merit. Irdai says MIIs should provide a level playing field for all stakeholders. Yet, the level playing field it describes covers only insurers and consumers, not other distributors.
Further, competing insurers would jointly run the platform and decide matters such as fees and rankings, which risks coordination among them. Rival insurers could share sensitive information on pricing, commission or customers. They could also offer lower prices only on their own platform, steering customers away from independent distributors.
Other markets apply the same rules to everyone doing the same job
The consultation paper points to a sharp rise in distributor commission. Between FY23 and FY25, general insurance premium through brokers grew by 37%, but broker commission grew by 173%, nearly five times as fast. In retail health, commission tripled from about 10% to 30%.
Irdai also says open architecture has given corporate intermediaries more power to demand higher pay, with payouts in some deals reaching 93%.Whatever view one takes of these figures, they do not justify treating brokers differently from agents. The 93% figure comes from corporate and group deals, not retail sales. Irdai itself asks whether remuneration should reflect the effort involved in advising and servicing customers, or the intermediary’s ability to negotiate higher payouts from insurers.
The question suggests that commission should follow the service, not the type of distributor. Other markets point in the same direction. In the UK, the Competition and Markets Authority found that comparison platforms improve competition, lower prices and help smaller suppliers enter. Web aggregators and brokers play a similar role here, yet the proposal gives them lower caps. Australia limited commission on life risk insurance but applied the same rules to all advisers.
Testing concerns from a competition perspective
Before Irdai finalises the proposals, it can test these concerns from a competition perspective. The Competition Act, 2002 provides a ready mechanism. Under Sections 21 and 21A, a sectoral regulator may seek the opinion of the Competition Commission of India (CCI), and the CCI may in turn seek the regulator’s. The opinion must be given within 60 days. It is not binding, but the authority receiving it must consider it and record reasons for its findings. Irdai can use it, even suo motu, before notifying the final regulations.
Equally, before giving effect to the proposals, Irdai or stakeholders may commission an independent market study by a reputed institution with insurance-sector expertise. Such a study could examine distribution costs, consumer outcomes and competitive dynamics across channels, and how comparable jurisdictions have calibrated distributor remuneration. An evidence-based foundation of this kind would lend the final regulations greater credibility and minimise the risk of unintended harm to competition.
Conclusion
A sectoral regulator exists to secure the best outcomes for the sector as a whole: policyholders, intermediaries and insurers, including potential new entrants. It ought not to identify with the incumbents it regulates. Irdai’s concern about rising distribution costs is understandable, but its proposed solution risks harming the competition it seeks to promote. A better approach would be to link commission to the extent of services rendered to the customer. This matters beyond the distribution market. The government’s target is ‘Insurance for All by 2047’, and achieving it will require a competitive insurance sector in which distributors compete on service, not on regulatory advantage. For this, we need a simple formula: ‘Same activity. Same treatment. For every distributor and every platform.’
