Possibly, but there is not yet evidence that the proposal will reduce insurance access in smaller towns. Lower distributor payouts could make some sales and servicing less economical, especially where transaction costs are high. At the same time, the proposal reportedly gives special treatment to business sourced from small towns and rural areas. The measures remain proposals under consultation, not binding rules.
What applies now, and what is IRDAI proposing?
The current framework
IRDAI’s Expenses of Management, including Commission, of Insurers Regulations, 2024 took effect on 1 April 2024. They apply to life, general and health insurers and allow insurers flexibility to manage expenses, including commissions, within overall limits. The regulation says this flexibility is intended “to enable and provide flexibility to the insurers to manage their expenses, including commissions, within the overall limits as specified by the Authority to optimally utilize their resources for enhancing benefits to policyholders and to improve insurance penetration.” That is the stated objective, not evidence that the framework has achieved those effects.
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The consultation proposal
IRDAI released a two-part consultation paper titled “Recalibrating Economics of Insurance Distribution” on 23 September 2026, according to Moneycontrol and News On AIR. It reportedly addresses expense limits, product- and channel-specific commission limits, distribution architecture, consumer protection, disclosures and digital infrastructure. The reported deadline for public comments is 25 October 2026. Until IRDAI finalizes and brings changes into force, the figures below are proposed terms, not current binding rates.
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1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minute| Reported proposal | What it would cover | Status and attribution |
|---|---|---|
| 15% within two years; 12.5% within five years | Expense-of-management ceilings for life insurers | Proposed phased limits reported by Business Standard; not current rules |
| 25% within two years; 20% within five years | Expense-of-management ceilings for general insurers | Proposed phased limits reported by Business Standard; not current rules |
| 15% for insurance distribution entities; 20% for agents and associates | First-year commission limits for individual health insurance | Reported examples from the consultation proposal, summarized by News On AIR; not current binding rates |
| 20% of the applicable first-year commission limit | Category II business, described as business sourced from towns with populations below 50,000 and all rural areas | Proposed treatment described in JSA’s September 2026 legal analysis; verify the precise category wording in the consultation text, and do not treat it as a final rule |
The expense ceilings and commission limits are different measures: a ceiling on an insurer’s overall expenses is not the same as a limit on commission for a particular product or channel. Their eventual effect would depend on the final wording, implementation timetable and how insurers and distributors respond.
How could lower payouts affect access?
Commission helps pay for distribution. If a limit materially reduces the economics of selling or servicing a policy, some distributors may devote less time or fewer resources to it. That could matter where acquiring and serving each customer costs a lot relative to the premium. Business Standard reported concerns about disruption to existing distribution channels and possible declines in sales volumes, but these are potential consequences, not measured forecasts for smaller towns.
IRDAI’s microinsurance overview identifies small ticket sizes alongside high transaction and service-delivery costs as challenges in developing that market. It also points to distribution, awareness, payment systems, simpler claims and technology as important factors. This helps explain why commission economics could matter for access; it does not show what the 2026 proposal will do to agent presence, sales, service or claims support.
Effects could differ by channel
- Local agents: A smaller payout could affect whether an agent finds it worthwhile to acquire or serve customers for some policies. The available sources do not show that agents will withdraw or reduce service in any particular town.
- Banks, non-bank financial companies and brokers: These are other distribution routes, but the sources do not establish how the proposal would change their relative economics or whether they could replace local-agent activity.
- Digital channels: Digital infrastructure is within the consultation’s reported scope, but the sources do not establish that online purchase can substitute for local advice or servicing for every customer.
There is no established winner among these channels. A change in commission rules could affect them differently depending on the final limits, each channel’s costs and how insurers choose to distribute products.
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A change in distribution could affect access to advice, ease of purchase and service, or the range of products offered. It does not by itself establish whether premiums will become more affordable, whether buyers will receive more suitable recommendations, or whether claims support will improve or worsen. Those outcomes require evidence after the rules are finalized and implemented.
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Why might IRDAI want to change distribution economics?
The reported policy direction is to reduce distribution costs while improving policyholder value, suitability and transparency, and limiting unsuitable or forced sales. Lower commissions could support that aim if savings benefit policyholders and sales become better aligned with customer needs. But a lower payout alone does not guarantee lower premiums or better advice: the results depend on how insurers pass through savings, structure distribution and enforce consumer protections.
The countervailing concern is that a rapid or poorly calibrated reduction could make some existing sales and service models less viable. Both the potential consumer-protection benefits and the risk of channel disruption are hypotheses about consequences until final rules and outcome data are available.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What would show whether smaller-town access is changing?
The consultation does not establish whether coverage in smaller towns will decline or improve. A meaningful assessment would need to look beyond the commission rates and track outcomes after implementation, including:
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Clear out junk files and repair common Windows errorsFree Scan →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →- whether local agents and other distribution options remain available;
- whether people can obtain advice, buy policies and get ongoing service;
- whether product choice and suitability change;
- whether premiums or other costs change for customers; and
- whether customers can get support through claims and other service needs.
Those results should be compared across metros, smaller towns and rural areas, and across distribution channels. Until such evidence exists, the most accurate answer is that lower payouts create a plausible access risk, while the reported Category II provision signals an effort to account for higher-cost locations. Neither point proves the eventual effect.
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