IRDAI’s New Proposal Could Change How Insurance Is Sold In India

You must have experienced this before, as you walk into a mobile store, the salesperson somehow always recommends one model that’s on offer. Or you sign up for a credit card, and the agent at the counter is enthusiastically pushing for one specific bank’s card over five others?

That enthusiasm isn’t loyalty. It’s math. Some products simply pay the salesperson more to sell than others.

Insurance in India runs on the exact same logic, only exception is that the stakes are bigger, because insurance commitment runs over decades unlike a phone you can return within a few days.

IRDAI has decided it’s time to break this math.

Insurers Have Been Living Large

Every rupee of your insurance premium is supposed to be split two ways: money that protects you, and money that keeps the insurance company’s lights on.

Problem is, ‘keeping the lights on’ has ballooned into commissions, advertising budgets, and the sales armies that cost way more than they should.

IRDAI wants that to shrink. Life insurers overspending today need to cut down to 15 pc of their premium income within two years, and 12.5 pc within five. General and health insurers face the same squeeze, their ceiling drops from 30 pc to 20 pc over five years.

The Commission Crackdown

Here’s the real shift. Instead of one flat commission rule for every policy, IRDAI wants commissions to match the actual effort of selling and not just the size of the sale.

A basic, no-frills term plan? Small commission: it’s not a hard sell. A complex, long-term savings product with a dozen features to explain? Bigger commission: the agent’s actually earning it.

For instance, a life insurance quietly bundled into your home loan, the one you signed off on without reading, currently earns banks a commission of roughly 45 pc.

But if the new rules get implemented, this commission crashes to 2 pc.

Why Is IRDAI Even Doing This?

A fat commission never comes free, it’s either baked into your premium, or it shows up as an agent nudging you toward the policy that pays them the most, not what actually fits you. Cut the commission, cut the incentive to oversell or mis-sell.

Who Wins, Who Bleeds?

The big names in the sector like LIC, HDFC Life are already fairly close to these limits. The new rule barely affects them.

The real damage lands on smaller, newer insurers. Without a big brand name to lean on, they’ve been buying market share by simply paying agents more than the competition. This can lead to consolidation as smaller players get squeezed out or bought up by the big guys.

Another major impact can be seen on large-scale brokers like Policy Bazaar.

The share market has already factored that in. PB Fintech Limited, the parent company of Policy Bazaar, shares crashed 36 pc to close at Rs 1,207.20 on September 24, 2026, following the release of an IRDAI consultation paper

Banks, meanwhile, just watched a quietly lucrative revenue line get axed.

What Does It Mean For You?

Cheaper premiums going forward and insurance agents recommending a policy because it fits your needs rather than because it fits their commission slab.

But the part nobody’s shouting about: if there’s barely any money in selling a Rs 3,000 policy to someone in a small town, agents might simply stop showing up there.

The same rule that protects you from a pushy sales pitch might also mean nobody bothers pitching you anything at all at a time when India’s insurance penetration is already painfully low.

It’s a classic trade-off: fix the mis-selling problem, and you risk creating an under-selling problem instead.

What Happens Next?

This is still a draft and IRDAI’s taking feedback from stakeholders until October 25, 2026.

So the final numbers could shift but the direction is locked in: insurance selling in India is about to get a lot less commission-driven. Is the industry ready for it?