The Insurance Regulatory and Development Authority of India (IRDAI) is preparing to release a significant consultation paper next month that could reshape commission structures across the insurance sector. According to sources, the regulator plans to address long-standing concerns about insurance commissions and costs that have been highlighted by the finance ministry, insurance regulator, and Reserve Bank of India.

Proposed Regulatory Framework

The consultation paper is expected to propose a return to segmental commission caps, mirroring the older regulatory framework that set distinct limits for different insurance categories. This approach would establish separate commission structures across various segments:

Expense Management Rationalization

Beyond segmental commission caps, IRDAI is expected to further rationalize the Expense of Management (EoM) limits, under which commissions are currently included. The regulator appears to be taking a dual approach to commission control:

• Tightening current expense caps: The existing limits on expenses are likely to be reduced, effectively lowering the permissible ceiling for insurance companies
• Segment-wise commission control: Implementing specific payout limits across different insurance categories

This two-pronged strategy suggests IRDAI's intention to exercise comprehensive control over commission structures from multiple regulatory angles.

Internal Review Process

Sources indicate that various internal departments within IRDAI are actively contributing to the proposal development. The life insurance, non-life insurance, and distribution verticals are expected to submit their respective inputs by the end of January. Once this internal consultation process concludes, the formal consultation paper could be released as early as February.

Market Impact

The insurance sector has been closely monitoring this regulatory development, particularly given the repeated emphasis from multiple financial authorities on commission-related concerns. Market participants are awaiting clarity on how these proposed changes might affect existing business models and distribution strategies across different insurance segments. The consultation paper will likely provide detailed guidelines on implementation timelines and compliance requirements for insurance companies operating across various product categories.

The Insurance Regulatory and Development Authority of India (IRDAI) is preparing to release a consultation paper focused on regulating commissions within the insurance sector, with the document expected to be published next month.

Regulatory Development Timeline

The upcoming consultation paper represents a significant step in the regulatory oversight of insurance commission structures. The timing suggests IRDAI is moving forward with its agenda to enhance regulatory frameworks governing insurance operations.

Industry Impact

The consultation paper on commission regulation is likely to address various aspects of how insurance companies structure and manage their commission payments. This regulatory initiative could influence operational practices across the insurance sector, affecting both companies and their distribution networks.

Next Steps

Once released, the consultation paper will provide detailed insights into IRDAI's proposed approach to commission regulation. Industry stakeholders will have the opportunity to review and provide feedback on the proposed regulatory changes during the consultation period.