India's Insurance Commission Caps Repeatedly Failed, Op-Ed Says

A debate over reimposing commission caps on insurance products in India is intensifying as evidence accumulates that the previous two-decade regime did not control costs but instead pushed payments into hidden channels. The Insurance Regulatory and Development Authority of India (IRDAI) is expected to release a consultation paper on intermediary regulations in June 2026, a document that could shape the future of distribution incentives.

Aravind Venugopal, a partner at Khaitan & Co., wrote in a Mint opinion piece that the old caps, in force until April 2023, produced what tax investigators called a systemic practice of disguised commissions. Between 2018 and 2022, authorities uncovered insurers paying intermediaries far above the permitted limit and masking the excess as service fees, supported by invoices that also yielded ineligible tax credits. Around 15 insurers and more than 100 intermediaries were drawn into the investigation. The suspected revenue loss was estimated at around ₹2,250 crore.

"The cap had not held commissions down. It had merely pushed them into costumes," Venugopal wrote.

The regulator's own enforcement actions support that conclusion. In 2024, IRDAI penalised a large life insurer after finding that payments presented as marketing and advertising expenses were excess commissions. Venugopal also noted that where a bank acquires an equity stake in an insurer whose products it sells, the pricing of that stake has been questioned as potentially carrying consideration that a commission cap would otherwise catch. "Wherever a hard limit sits on what may be paid, ingenuity finds a way to pay more without appearing to do so," he said.

Singapore's regulatory model offers what Venugopal called a more effective alternative. The city-state requires commissions on a regular-premium life policy to be spread over at least six years, with no more than 55% paid in the first year. That structure means advisors are paid in full only if the policy persists, reducing the front-loading that fuels churn. Singapore also links an adviser's pay to the quality of the sale, docking commissions for poor suitability or inadequate disclosure. Both measures influence behaviour rather than price, and together they reduce the incentive for a quick sale. Additionally, insurers must disclose the cost of distribution to customers as a specific figure on every policy's benefit illustration, similar to a mutual fund's expense ratio.

India already has parts of that scaffolding in place, Venugopal argued. For unit-linked policies, the regulator caps the reduction in yield and the fund management charge while requiring disclosure of net returns. The 2025 amendments to the Insurance Act empower IRDAI to prescribe how commissions are paid and disclosed. Insurers already operate board-approved commission policies within an overall expense ceiling. The June 2026 consultation paper on intermediary regulations moves further by requiring large distributors to publicly disclose their commissions.