Buying insurance is not merely taking a policy; it is choosing dependable protection for a future risk. If the seller's earning is tied only to more sales rather than suitable advice, the customer may take a product whose need or conditions they do not properly understand. The test of distribution reform should be the real value the customer receives.
Why in the News
On 23 September 2026, IRDAI issued a public consultation paper titled "Recalibrating Economics of Insurance Distribution". It proposes improvements on the structure of distribution, expenses, commissions, transparency and protection from improper selling. This was not an announcement of final rules in force but a stage of taking views from stakeholders. So describing proposed commissions or expense limits as an arrangement already in force would not be right.
Key Facts
A simpler distribution framework: the paper proposes broad categories of distribution entities, distribution persons and market infrastructure entities. The aim is to simplify the complex structure, lower entry barriers and create comparable rules for the same work.
Review of expenses and commissions: management expenses include administrative and distribution-related costs. The proposals consider a phased move towards lower limits and a commission structure according to the effort of the product, channel and service. Treating the cost of every kind of sale as alike would not be right.
Suitability and responsibility: recording the customer's need and suitability, including direct and indirect benefits in remuneration, disclosure of commission and steps such as clawing back commission in mis-selling are proposed. Recognising responsible advice for the policy, instead of merely selling it, is important.
How Can Customer Protection and Reach Grow Together?
The right tie of incentives: if there is more gain on selling a new policy and less attention on later service, the risk of unnecessary switching or unsuitable selling rises. Meeting the customer's need over a long period should also get weight.
The cost of small markets: in rural or low-premium products, the cost of reach and advice can be proportionately higher. Cost-cutting policy should not become a reason for sellers to leave these markets.
Information is useful only when understood: disclosure of commission does not by itself create understanding. The product's cost, benefits, exclusions and complaint process should be available in a simple and comparable form.
Analysis and Way Forward
The reform should not be assessed only by the distributor's commission falling or insurance companies' savings rising. It will have to be seen what changes in the customer's cost, suitable protection and service. Phased compliance can give small entities time to adjust, but responsibility for mis-selling should not weaken. The record of need should be based on a real conversation, not become merely a signed formal document. Problems can be identified by reviewing complaints, early policy closures and renewal behaviour. Digital channels can help, but customers who need language, access and advice should keep getting options.
Conceptual Distinctions
A consultation paper, a final regulation and the date of coming into force are different stages. Lowering commission is not automatic proof of the customer getting a suitable product and better service.
Mains View
In the answer, do not make insurance reach and consumer protection opposing goals. Keep incentives, the quality of advice, transparency and the practical cost of service together.
Answer Outline
Introduction: Begin with the customer's trust in insurance and the role of advice; keep the balance between the distributor's sales incentive and the customer's long-term need.
Main Body: Explain that rewarding only new sales brings the risk of unsuitable products or unnecessary changes. Keep a real record of need and suitability, disclosure of direct-indirect remuneration and responsibility for improper sales. The product's cost, benefits and exclusions should be understandable to the customer. Pay attention to the higher proportional cost of advice and service in rural and low-premium markets; examine the risk of reach shrinking from a uniform limit.
Conclusion: Judge customer value by complaints, early policy closures, renewals and service. Keep phased improvement and options of language and access; do not write the consultation paper as final rules in force, or a fall in commission as automatically better protection.
Sources
- 23 September: the available copy of IRDAI's release
- Account of the proposed distribution and expense reforms
- A legal analysis of the consultation paper's proposals
Remember: the quality of insurance distribution should show, beyond the sale, in suitable protection and dependable service.
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