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- with Senior Company Executives, HR and Finance and Tax Executives
- with readers working within the Accounting & Consultancy, Insurance and Oil & Gas industries
I. Introduction
The Indian insurance sector is at an inflection point. Parliament has passed a landmark amendment law. The regulator is readying a consultation paper on distribution reforms. The Government has set an ambitious mission of ‘Insurance for All by 2047’. The direction of travel is clear. The destination, however, will depend on the design of the road.3 The IRDAI is fully seized of formulating and putting up in public domain a consultation paper for feedback from stakeholders.
This Article makes three simple points. First, the recent amendments have opened the doors for growth and competition in insurance markets in India. Second, direct and digital sale of policies must grow, but not at the cost of intermediaries. The experience of other financial segments teaches this lesson loudly. Third, the malady of mis-selling needs a cure that punishes the wrongdoer, not the channel. The forthcoming consultation paper is the right occasion to get this balance right.
II. The 2025 Amendment Act: What Has Changed
The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 was passed by both Houses of Parliament in December 2025.4 The Act has been brought into force with effect from 5 February 2026. It amends three statutes in one stroke: the Insurance Act, 1938, the LIC Act, 1956 and the IRDA Act, 1999.
The key changes are:
- Foreign direct investment (FDI) in insurers has been raised from 74% to 100% under the automatic route. Fresh capital, technology and global best practices are expected to flow in,
- The net owned fund requirement for foreign reinsurers has been slashed from Rs. 5,000 crores to Rs. 1,000 crores. Entry barriers have thus been lowered,
- Intermediaries now get one-time perpetual registration in place of renewal every three years. Suspension of licence, rather than outright cancellation, has been provided for. This is 'ease of doing business' in action,
- The definition of 'intermediary' has been broadened to include managing general agents and insurance repositories,
- IRDAI has been expressly empowered to specify regulations on remuneration, commission or reward payable to agents and intermediaries, including limits, manner of payment and disclosures,
- An enabling framework for a composite licence regime has been created. The Central Government may notify new classes of insurance business,
- A Policyholders' Education and Protection Fund has been provided for like Investors Education & Protection Fund (which is administrated by the Ministry of Corporate affairs) and Consumers Protection Funds (administered by the Ministry of Consumer Affairs, Government of India).
- The IRDAI has also been armed with powers of disgorgement of wrongful gains,
- The threshold for prior IRDAI approval of share transfers has been raised from 1% to 5%. Mergers of insurers with non-insurance companies are now permissible with regulatory approval.
- Public consultation has been made mandatory for IRDAI regulations. The legislative intent is unmistakable.
The legislative intent is unmistakable: more players, more capital, more competition and more accountability.
III. IRDAI's Steps Towards Fair Competition
Fair competition in any market rests on three legs: (i) more choice to the consumer; (ii) more options and freedom to the suppliers; and (iii) operational flexibility to the intermediaries who connect the two. IRDAI's recent measures map neatly onto these three legs.
Choice to the insured is being enhanced through Bima Sugam. This is an industry-owned electronic marketplace. It has been described as the 'UPI moment' for insurance. A customer can compare products of all insurers on price and service parameters on a single screen. As per the media report, initially motor, health and term products shall be made available on the platform by the end of September 2026.5 Bima Sugam is one part of the Bima Trinity. The other two parts are Bima Vistaar, a bundled micro-insurance product, and Bima Vahak, a women-led last-mile distribution channel.6
Options for insurance companies have been widened by the 100% FDI regime, the enabling framework for composite licences, the removal of restrictions on investment in private companies and easier merger and share transfer norms. The 'use and file' regime for products has already given insurers speed and swiftness to the market.
Operational flexibility to intermediaries flows from perpetual registration, proportionate penalties, the graded response of suspension before cancellation, and the widened definition of intermediaries. Significantly, the regulator has clarified that both direct sale and sale through intermediaries will continue. IRDAI's stated focus is on improving customer outcomes and not on targeting any particular distribution model. This channel-neutral posture is welcome. It is also consistent with competition principles. The Regulator should frown upon misconduct, not pick winners amongst channels.
IV. Why Intermediaries Are Indispensable: Lessons from Other Financial Segments
In the Insurance contracts, there exists two Grund norms which are (a) “Uberrima Fides” and (b) "Caveat emptor”. The principle of Uberrima fides demands the proposer discloses everything material to risk assessment whereas Caveat Emptor stands for the principle of “let the buyer beware”. This old adage remains true in large parts of India. While the Awareness is low. Products are complex and trust deficit is real. The human intermediary bridges all three gaps. The experience of sister financial segments offers instructive cues.
Mutual funds- SEBI banned entry loads on mutual funds in 2009. The intent was noble: reduce cost to the investor. The immediate effect, however, was a shrinkage of the distribution force and stagnation in retail folios and inflows for several years. SEBI had to course-correct through transaction charges and special incentives for distribution beyond the top cities. Direct plans were introduced in 2013. Yet, even today, a dominant share of individual investors' assets comes through distributors. The lesson is simple. Squeeze the intermediary beyond a point, and penetration suffers. The investor who is left unadvised often stays uninvested.
Banking and financial inclusion- The Pradhan Mantri Jan Dhan Yojana opened crores of bank accounts. Technology helped. But the real foot soldiers were the banking correspondents and bank mitras who took banking to the doorstep of the unbanked. Digital rails alone did not achieve inclusion. Human agents riding on digital rails did.7
Post office’s small saving schemes- India's post office small savings network offers an instructive precedent for the insurance commission debate. Despite operating the largest physical financial services network in any developing economy, roughly 1.6 lakh post offices, nearly 1.4 lakh of them rural India Post has, for over sixty years, relied on a parallel commissioned agent network including Mahila Pradhan Kshetriya Bachan Yojana (MPKBY) and Standardised Agency System (SAS), rather than its own institutional footprint alone. As of December 2025, 2,66,414 such agents remain active.8
Government-backed insurance and pension schemes- PMJJBY, PMSBY and the Atal Pension Yojana are low-ticket, low-margin products. They have reached scale only because banks, their agents and grassroots workers enrolled subscribers, explained benefits and assisted claims. The scheme design itself builds in a small incentive for the enrolling intermediary. Even the State recognises that distribution effort must be compensated.
The inference of these segments is common and compelling. Direct and digital channels lower costs and empower the informed urban customer. Intermediaries create the market among the uninformed, the hesitant and the underserved. India needs both. The mission of ‘Insurance for All by 2047’ cannot be achieved by an app alone. It needs lakhs of agents, brokers, corporate agents and Bima Vahaks working alongside Bima Sugam. The two channels complement and are not substitutes.
V. The Malady of Mis-selling and the Proposed Cure
Mis-selling is the chronic disease of Indian insurance. Wrong products are sold to wrong customers. Policies are lapsed or surrendered early. Grievances mount and trust erode. The root cause is well known. Heavy upfront commissions reward the sale, not the suitability. On some products, distributors reportedly earn up to 30% to 40% of the first-year premium, largely upfront. The incentive to churn is built into the structure.
Media reports indicate the shape of the proposed cure. IRDAI is likely to propose that commissions be spread over the life of the policy in the form of trail payments, instead of large upfront payouts. Remuneration is proposed to be linked to effort and to long-term persistency9. Mandated products like third-party motor insurance and mere renewals may attract lower acquisition costs. Expenses of Management ratios are reportedly under review. IRDAI has also cracked down on 'dark patterns' in digital sales through self-assessments and independent audits.10 These moves mirror the Reserve Bank of India's recent framework to curb mis-selling by banks, and by the Dark Pattern Guidelines issued by Ministry of Consumer Affairs for E- commerce platforms.
VI. The Forthcoming Consultation Paper: What It Is Likely to Have and What It Ought to Have
The media report suggest that the Consultation Paper on distribution reforms is expected to be put in public domain shortly for feedback of the stakeholders. As per reports, it is likely to cover persistency, distributor incentives, customer choice, bancassurance partnerships and the overall regulatory architecture. A shift from upfront to trail commissions is expected to be its centrepiece.
What the Consultation Paper is likely to have is important. What it ought to have is more important. In the Author's view, the paper ought to contain the following elements to ensure orderly growth of Insurance Sector:
- Suitability first- A simple, mandatory needs-analysis at the point of sale, applicable to every channel, including direct and digital sale. The suitability record should be preserved and auditable.
- Channel-neutral disclosure- The customer should know, in plain language, what the distributor earns on the product. Sunlight is the best disinfectant.
- Persistency-linked remuneration with a glide path- Trail commissions align interests. But an abrupt switch will disrupt the cash flows of small agents and may thin out the distribution force, as the mutual fund experience of 2009 warns. A phased transition over three to five years is advisable.
- Clawback of commissions on early lapsation attributable to mis-sale, coupled with the new disgorgement powers against errant entities.
- Renewal support, claims assistance and grievance handling deserve compensation.11 Otherwise trail becomes a delayed sales commission, nothing more.
- A level playing field among Bima Sugam, web aggregators, brokers, corporate agents and individual agents.12 The industry-owned platform must not enjoy regulatory favours that distort competition.
- Publication of channel-wise mis-selling and grievance data. What gets measured gets managed.
- Special dispensation for rural, social and micro-insurance distribution, taking a cue from SEBI's B-30 incentives13 and the incentive design of PMJJBY, PMSBY and APY.
A consultation paper which embodies above elements will serve the twin objectives of insured protection and market development. It will discipline the errant without disbanding the essential.
VII. Insurance and the Competition Act: No Exemption, Concurrent Vigil
One aspect deserves a special mention. Section 54 of the Competition Act, 2002 empowers the Central Government to exempt any class of enterprises from the application of the Act. No such exemption has been granted to the insurance sector since the law has come to the force in year 2009. The position, therefore, is clear. Both the upstream segments (insurers and reinsurers) and the downstream segments (intermediaries and distribution arrangements) will continue to be governed by the Competition Act,2002.
This is not a theoretical point. The CCI has, in the past, penalised public sector general insurers for bid-rigging in a government health insurance tender. IRDAI approval of an amalgamation does not dispense with CCI approval where thresholds are met. Going forward, the liberalised regime will only heighten the relevance of competition scrutiny. Combinations involving 100% foreign acquirers, mergers of insurers with non-insurers, exclusive bancassurance tie-ups and the conduct of a dominant digital marketplace will all invite the concurrent vigil of the sectoral regulator and the market watchdog namely Competition Commission of India. Insurers and intermediaries would do well to embed competition compliance in their growth plans.
VIII. Conclusion
The 2025 amendments have laid a solid legislative foundation. IRDAI's measures are broadly wedded to the principles of fair competition: more choice to the insured, more options to insurers and more flexibility to intermediaries. The continuation of the dual channel of distribution, direct as well as intermediated, is the benign policy choice. Other financial segments have shown that the intermediary is not a cost to be eliminated but a capability to be harnessed. Mis-selling must be tackled by realigning incentives, enforcing suitability and punishing misconduct, and not by weakening the distribution force. The forthcoming consultation paper is a golden opportunity. If the balance is struck well, the orderly growth of the Insurance Industry in India is assured, and the mission of 'Insurance for All by 2047' will move from aspiration to achievement.
Footnotes
1 GR Bhatia is a Senior Partner and Head of the Competition Law Practice at Corporate Professionals Advisors & Advocates and can be reached at gbhatia@indiacp.com . Mr. Bhatia also served as former Additional Director General of Competition Commission of India and erstwhile MRTP Commission, Government of India. The author has been assisted by Shashwat Ranjan who is a Trainee at Corporate Professionals Advisors and Advocates.
2 Ravi Prakash is a Partner at Corporate Professionals Advisors & Advocates and can be reached at ravi@indiacp.com.
3 Insurance Regulatory and Development Authority of India, Annual Report 2024-25 (2025); Swiss Re Institute, Sigma: World Insurance Report (2024).
4 The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 (India).
5 Aathira Varier, Bima Sugam to Launch Initial Products by Sept-end: Irdai Chairman Seth, Bus. Standard (June 30, 2026, 4:37 PM IST), https://www.business-standard.com/finance/insurance/bima-sugam-to-launch-initial-products-by-sept-end-irdai-chairman-seth-126063000744_1.html.
6 Insurance Regulatory and Development Authority of India (Bima Sugam Insurance Electronic Marketplace) Regulations, 2024; Insurance Regulatory and Development Authority of India (Bima Vahak) Guidelines, 2023.
7 PTI, 15 Crore Out Of 57.07 Crore PM Jan Dhan Yojana Accounts Inoperative: Minister of State for Finance, Free Press Journal (Dec. 9, 2025), https://www.freepressjournal.in/business/15-crore-out-of-5707-crore-pm-jan-dhan-yojana-accounts-inoperative-minister-of-state-for-finance.
8 Small Savings Agents, Unstarred Question No. 2417, Lok Sabha, 24 Agrahayana 1947 (Saka) (Dec. 15, 2025), answered by Shri Pankaj Chaudhary, Minister of State, Ministry of Finance, Gov't of India, Ministry of Finance., Department of Economic Affairs,
https://sansad.in/getFile/loksabhaquestions/annex/186/AU2417_O5hKHd.pdf?source=pqals).
9 Helen Stanis Lepcha, How IRDAI's New KMP Remuneration Framework Is Reshaping Insurance Governance and Executive Accountability in India, Mondaq (June 3, 2026), https://www.mondaq.com/india/executive-remuneration/1796322/how-irdais-new-kmp-remuneration-framework-is-reshaping-insurance-governance-and-executive-accountability-in-india.
10 Insurance Regulatory and Development Authority of India, Press Release, Compliance with Guidelines on Prevention and Regulation of Dark Patterns (Apr. 2, 2026), https://www.medianama.com/wp-content/uploads/2026/04/IRDAI-dark-patterns.pdf.
11 Stefan Dercon & Martina Kirchberger, Literature Review on Microinsurance, Microinsurance Paper No. 1, Int'l Labour Off. (2008).
12 Financial Conduct Authority, Thematic Review TR14/11: Price Comparison Websites in the General Insurance Sector (2014); Australian Securities and Investments Commission, Reviews of Insurance Comparison Websites.
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