Who Wins and Who Gets Squeezed: Inside IRDAI’s Insurance Distribution Reset

On 23 September 2026, IRDAI released a consultation paper that could reshape how insurance reaches Indian households for the next decade. Titled “Recalibrating Economics of Insurance Distribution,” the paper proposes changes on several fronts at once: how easy it is to become an insurance distributor, how much insurers can spend on distribution, how commissions are structured, and how transparently all of it operates. It is anchored in the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, and public comments are open until 25 October 2026.

The reform pulls in two directions at once. It makes entry easier, with lower capital requirements, simpler registration, reduced fees, and room to run other financial or non-financial businesses alongside insurance. But it also tightens how much insurers can spend on distribution overall, and restructures commissions so they’re tied to how complex a product is and how much effort it takes to sell, rather than a flat rate. Add mandatory audits of that spending and stricter disclosure rules, and a question follows naturally: does easier entry actually help small and new distributors, or does the tighter economics around them mean only larger, better-resourced players can make the business work?

The number behind the reform

To understand why the regulator moved to cap commissions and cut distribution spending at all, it helps to look at the number that seems to sit behind it. “As per IRDAI’s consultation paper, across a representative sample of life insurance corporate agency business, new business premium grew 28 percent between FY23 and FY25 while distributor remuneration grew 125 percent,” says S. Anand, Founder and CEO of PaySprint, a B2B banking fintech and regtech infrastructure company. “That is not a distribution cost problem, it is a distribution economics problem. The money was flowing to whoever controlled the customer relationship at scale, not to whoever served the customer best.”

That gap is what sits behind the paper’s new expense cap: the limit on how much of every rupee of premium an insurer can spend on distribution, which is being brought down to 12.5% for life insurers and 20% for general insurers over five years. Anand reads the two halves of the reform, easier entry and tighter commission caps, as one coherent move rather than two competing signals. “The regulator is shifting the barrier to entry from capital to competence,” he says. “The question for a smaller distributor is no longer ‘can I afford the infrastructure’ but ‘can I run a clean, verifiable, suitable sale at a commission that reflects actual effort.'” He’s careful not to oversell what technology alone can fix, though: “Cheaper KYC will not save a distributor whose business model depended on payouts that ran 30 to 60 percent above base commission through rewards and promotional spends. It will absolutely help the distributor who has a real customer base, particularly in smaller towns, where the paper proposes additional rewards for underserved regions.”

Two rules, read as one

If Anand sees the commission data as the reform’s starting point, Sonam Chandwani, Managing Partner at KS Legal & Associates, sees deliberate design in how the two rules, easier entry and tighter economics, sit together. “The two measures need to be looked at together rather than in isolation,” she says. “Making entry easier certainly lowers the initial barrier for a new distributor. But the benefit of easier entry can be diluted if the distributor is then required to operate within significantly tighter expense and commission limits.”

She frames this as a shift in what the regulator is actually trying to control, not just who gets to enter the market, but how distribution businesses behave once they’re in it. “The objective appears to be a shift from regulating entry alone to regulating the manner in which distribution businesses use customer-related revenues,” she says. “A lower entry threshold does not necessarily mean a lower cost of doing business.” That distinction matters because registration is only the starting line: the paper layers on continuing obligations around governance, disclosures and record-keeping that don’t disappear once a distributor is registered.

Where scale still wins

That ongoing compliance load is exactly where Sanjiv Bajaj, Joint Chairman and MD at Bajaj Capital Ltd., locates the real dividing line, not in who can enter, but in whether the infrastructure needed to stay compliant is something every distributor has to build alone, or something they can share. “Digital onboarding, KYC and policy servicing can bring down the operational effort involved in serving a customer,” he says. “That’s particularly useful for a smaller distributor, because it lets them operate with a leaner setup. The question is whether these efficiencies are genuinely shared across the ecosystem.” A large player can spread technology costs across a much bigger customer base, he notes, “whereas a smaller distributor may find the same fixed costs harder to absorb.”

Anand goes further, arguing the economics have already shifted in the smaller player’s favour. “Verification today is consumed through APIs, priced per transaction, with no fixed build cost,” he says. “A distributor with twenty agents pays for twenty onboarding journeys; one with twenty thousand pays for twenty thousand. The cost is variable, not fixed, and that’s what makes it survivable for the small player.” What still accrues to scale, in his view, is negotiating power on commission, “and that is exactly what IRDAI is now capping.”

Chandwani agrees smaller distributors face both an opening and a burden here. “A smaller intermediary no longer needs the same level of capital or administrative infrastructure merely to enter the regulated space,” she says. “The difficulty is that regulatory compliance does not end with registration.” A large intermediary can spread the cost of that compliance across a much bigger book of business; a small one absorbs it over a far smaller customer base. “The reform may make entry easier without necessarily making competition easier,” she says. “The legal framework can create a level playing field at the point of entry, but commercial scale can still determine who survives.”

Cost, or infrastructure?

That tension, between compliance as a cost and compliance as shared infrastructure, runs through how all three sources read the reform’s transparency mandates. For Anand, it comes down to which direction the cost line moves over time. “It shifts cost from a line that only ever went up to a line that only ever comes down,” he says. “Commission escalation had no ceiling on its own. Compliance infrastructure, built as shared, API-based rails rather than bespoke systems inside every intermediary, gets cheaper every year.” He points to the scale of the underlying problem, with grievances in general insurance rising from 78,347 in FY23 to 1,37,361 in FY25, and argues that verified records of who sold what to whom function less as a compliance tax and more as insurance against disputes later. “Intermediaries who treat this as a tax will find it expensive, because they’ll bolt it on. Those who treat verification as the operating system of the business will find it pays for itself.”

Bajaj sees the same fork, framed around whether that infrastructure ends up duplicated or shared. “Stronger verification and greater accountability require real investment, and the impact of fixed compliance costs is naturally more significant for smaller businesses,” he says. “The important question is whether compliance becomes reusable infrastructure or something every distributor has to build independently. If common digital systems can support multiple participants, the economics become far more manageable,” and if not, he warns, “the cost of compliance can become a disproportionate burden for smaller businesses.”

Three years out

That question of disproportionate burden shapes how each of them sees the market settling once the reform’s glide path plays out. Anand expects a split: consolidation at the infrastructure layer, where he reads IRDAI’s push toward Bima Sugam and the Public Insurance Registry as a deliberate move toward fewer, shared rails, but more participants, not fewer, at the seller layer, as entry costs fall toward zero for a compliant distributor in a smaller town. He points to persistency data to make the case: only 48 percent of life policies were still in force 61 months after purchase, against 71 percent for policies sold online. “That gap isn’t about online versus offline. It’s about verified, suitable selling versus everything else.”

Bajaj is more cautious about calling it either way. “Technology, compliance and servicing capabilities involve fixed costs, so scale will naturally remain an advantage for larger players,” he says, but he resists a purely tech-driven read of the market. “Insurance is still a high-trust business. When the decision is complex or a claim needs to be navigated, human support continues to matter. That creates room for different models” to coexist. “The real pressure will be on businesses that have neither scale nor a clearly differentiated proposition, but it’s too early to say the outcome will necessarily be consolidation.”

Chandwani expects both things to happen simultaneously: more specialised, tech-enabled entrants, alongside consolidation among those who can’t sustain margins once compliance costs land in full. But she resists reducing the outcome to size alone: “The ultimate beneficiaries will not necessarily be the largest players simply because they are large. The real advantage will lie with distributors that can combine compliance, technology, customer acquisition and operational efficiency.”

The bottom line

Read together, the three views converge on the same conclusion from different directions: IRDAI’s reform genuinely lowers the cost of entry, but it does not remove the harder test that follows it, surviving on tighter margins while meeting stricter compliance. Whether that test ends up favouring the biggest players or simply the most efficient ones will depend less on the final text of the regulation than on how cheaply verification and compliance infrastructure can be shared across the market, rather than rebuilt by every distributor on its own. With comments closing on 25 October, that is the argument the industry now has roughly three weeks left to make.