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If you are thinking of taking a new insurance policy, then this news is related to your savings. Over the past decade, premiums have become increasingly expensive in the country, but the scope of coverage has not increased. The reason is that insurance companies kept paying more attention to distributing commission to brokers than increasing business.
Now the insurance regulator is preparing to change this. Under the new proposal of IRDAI, now the maximum limit of the first year commission of brokers will be fixed. This will reduce the expenses of the companies and more of your premium money will be invested, which will give you better returns.
Management expenses will have to be reduced to 12.5% in 5 years
| Sector | current limit | goal in 2 years | goal in 5 years |
| life insurance | 30% | 15% | 12.5% |
| General Insurance | 30% | 25% | 20% |
Currently the limit of management expenses for insurance companies is up to 30%. The insurance regulator has proposed to reduce it in a phased manner.
IRDAI believes that the relaxation in expenses given to companies in 2023 did not provide any benefit to the customers. Companies kept increasing premiums, but the number of customers did not increase.
Country’s GDP increased, but policy growth zero
In the last 10 years, GDP grew at an average rate of 10%. During this period, life insurance business could grow only at the pace of 10% and general insurance business could grow at the pace of 13%. Despite the increase in income and economy, there was no significant increase in the number of people taking insurance.
- New individual policies in 2016 were approximately 266 lakh.
- In 2025, new individual policies could reach only 270 lakh.
- There has been no major change in the number of active policies.
Agents’ commission increased by 125%
According to IRDAI, companies were given relaxation in expenses in 2023 so that policies become cheaper and more people get insured, but on the contrary, the premium became expensive. Instead of increasing the business of the companies, the focus was more on distributing huge commissions to the distributors.
- Corporate Agents: New business premiums grew by 28% between 2023 and 2025, while distributors’ commissions increased by 125%. About 27% of the first year’s premium goes towards commission. Apart from this, incentives are available separately.
- Brokers: In general insurance, premiums received through brokers increased by 37%, but their commissions climbed by 173%. The average broker commission increased from 8.5% to 17%.
A large part of the premium will be invested in investments
IRDAI says huge commission increases costs for customers. Due to this, they either have to pay expensive premiums or get less benefits from the insurance product.
In such a situation, IRDAI has proposed to cap the commission on the basis of premium payment term. Due to reduction in commission, a larger part of the policyholders’ deposits will be able to be invested.
Commission will be decided according to the policy term
| premium tenure | Cap for distribution companies | Cap for individual agents |
| less than 5 years | 5% | 6.25% |
| 5 years | 10% | 12.5% |
| 6 to 8 years | 14% | 17.5% |
| 9 years | 18% | 22.5% |
| 10 years or more | 20% | 25% |
Half of the policies lapse in the 61st month
According to IRDAI data, companies only focus on selling new policies and not on retaining customers. In life insurance, only 48% of policies remain in force by the 61st month. That means more than half the people surrender the policy midway.
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