Summary: This blog critically examines the IRDAI’s consultation paper on distribution reforms, which proposes consolidating all insurance intermediaries, effectively eliminating insurance broking as a distinct class of intermediary. This proposal could have adverse implications for customers and investors and therefore warrants careful reconsideration.
The Insurance Regulatory and Development Authority of India (IRDAI) conducted a significant overhaul of the regulatory framework for insurance companies in 2024. It transitioned to a principle-based regime, based on the recommendations of the Regulation Review Committee. However, distribution related regulations were eventually not amended as part of the overhaul. Two years later, the IRDAI has released its consultation paper on distribution reforms titled ‘Recalibrating Economics of Insurance Distribution’, dated September 23, 2026 (“Consultation Paper”). The Consultation Paper focuses on two aspects – commission capping and structural reforms to the distribution architecture. While commission capping has invited differing knee jerk reactions from the market, distribution reforms warrant a deeper study.
Through the Consultation Paper, the IRDAI proposes to replace the existing distribution architecture, categorised by different types of distributors at both the entity and individual level, with only three broad classes, namely Insurance Distribution Entities (“IDEs”), Insurance Distribution Persons (“IDPs”) and Market Infrastructure Institutions (“MII”). IDEs, as a class, propose to replace entities currently known as insurance brokers, corporate agents, insurance marketing firms, web aggregators, common service centres and motor insurance service provider dealers; and also replace individuals currently designated as agents, point of sales persons, specified persons, designated persons, insurance sales persons, broker qualified persons, rural authorised persons, village level entrepreneurs and authorised verifiers. Lastly, as of date, Bima Sugam India Federation is the only MII.
We need to emphasise that the structure proposed by the IRDAI seeks to bundle all insurance intermediary entities into ‘IDE’, thereby, removing insurance broker as a class of intermediaries altogether. Historically, insurance brokers have been a distinct and separate class of intermediaries that represent a customer in an insurance transaction. They are onboarded only when a “mandate” from a client is finalised. Insurance brokers thus owe a fiduciary duty to customers and are permitted to only undertake insurance broking and risk management business. The paper is remarkably silent on whether a broker-specific fiduciary standard will continue to survive under the IDE umbrella. In fact, it does not address whether the concept of an insurance broker will exist in the future. However, if the proposals are implemented, brokers, corporate agents and other intermediaries will become a unified single class. The regulator has, in effect, proposed removing ‘insurance brokers’ as a separate class, which will result in a market bereft of intermediaries owing a fiduciary duty to customers. Very few proposals have shocked the market so deeply.
This proposal, along with commission caps, may result in sizeable revenue loss. Accordingly, the service capabilities of existing brokers may substantially reduce. Due to commission being capped, revenue of intermediaries would depend on quantity of customers rather than quality of service. Thus, while trying to solve for ‘commission-led growth’, the proposal creates a perverse incentive structure where business survival of intermediaries is likely to depend on voluminous distribution rather than quality of service. Our argument is fortified by the language of the ‘Do’s and Don’ts of IDE’ proposed in the consultation paper. These prescriptions impose suitability obligations only at the point of sale, with no corresponding standard for after-sales service or servicing continuity.
Under the current regulatory regime, insurance brokers are required to operate exclusively in broking business under the IRDAI’s strict regulatory oversight, whereas other non-exclusive intermediaries enjoy greater latitude and lesser regulation. Under the proposed reforms, it appears that insurance brokers and banks would be treated equally since no distinction would be made within insurance intermediaries. In such a scenario, the question arises as to whether the IRDAI would be able to exercise the same degree of control over these intermediaries as it does currently? Separately, at a macro level, the reforms create uncertainty and raise concerns about business continuity for investors in the broking sector, both domestic and foreign. Since the liberalisation of the commission regime in 2023, insurance brokers raised sizeable capital from investors. Re-introducing these commission caps may result in dwindling capital flow into distributors, which will lead to reduction in employment and distribution capabilities.
The Consultation Paper rightly suggests lack of trust in the current structure. However, it also assumes that commissions result in higher premiums, which in turn results in lack of insurance growth and customer trust. The same paper reports that 75% of disputes handled at the ombudsman level are settled in favour of the customer. It is arguable that while trying to rebuild customer trust, the regulator may be overweighing the metric of “cost” relative to the metric of “business conduct” and “service quality”. Before moving forward with reforms, it is advisable to conduct a nation-wide study to better understand the customer, but more importantly the role played by insurance brokers as service providers and not merely as distributors. As India strives for “Insurance for All” by 2047, this cannot, and should not, be the end of the road for brokers.
Recent Comments