The ₹1 of Premium Everyone Wants a Piece Of: IRDAI’s Commission Reset, Explained

On September 23, 2026, the insurance regulator published a consultation paper. By the close of trading the next day, PB Fintech – the company behind Policybazaar – had lost 36% of its market value. Max Financial fell nearly 10%. HDFC Life dropped 6%. And yet, on the very same day, ICICI Lombard rose 5% (Marketcalls, Business Today).

Same news, same sector, opposite reactions. To understand why, you have to understand one number most policyholders never see: the commission.

TL;DR

IRDAI’s proposed insurance distribution reforms could reshape how commissions are paid across India’s insurance industry. The proposed caps may reduce distributor payouts, putting pressure on companies such as PB Fintech, while potentially lowering acquisition costs for insurers such as ICICI Lombard. The impact varies by business model, depending on how heavily companies rely on agents, banks, brokers and digital distributors. With the rules still under consultation, the final impact on insurance companies, distributors, margins and growth will depend on what IRDAI ultimately implements.

How Insurance Commissions Actually Work

When you buy a policy, the insurer rarely sells it to you directly. Somebody else does: an agent, a bank branch, a car dealer, a web aggregator, an NBFC offering you a loan. The insurer pays that intermediary a commission on your premium.

A few features make insurance commissions different from, say, a mutual fund’s distribution fee:

• The first year is where the money is. In life insurance especially, commissions are front-loaded. An intermediary might earn 30-40% of the first-year premium, then just 1-2% on each renewal thereafter. In FY26, HDFC Life paid 38.7% of the first-year premium as commission, compared with 1.6% on renewals; Axis Max Life paid 31.0% against 2.1%. That’s why selling a new policy is far more lucrative than servicing an old one.
• Single-premium products usually pay less. But, as we will see, that has been changing. These are policies where you pay the entire premium upfront in a lump sum, rather than in yearly instalments, very common with annuities (pension plans) and some savings plans. Since there are no renewals to service, commission has traditionally been a small percentage of that one payment.
• In general insurance, the ratio is measured on net premium. A general insurer’s “commission ratio” is its net commission (commission paid to distributors, minus commission it earns from reinsurers) as a percentage of net written premium.

Here’s the part that explains the market reaction. The same rupee of commission means very different things to different players:

• For distributors like Policybazaar, commission is revenue.
• For banks and NBFCs, it’s fee income sitting on top of their lending business.
• For insurers, it’s a cost of acquiring a customer.

So when a regulator cuts commissions, it’s cutting one group’s revenue and another group’s costs at the same time.

Why Commissions Went Up So Fast

Until March 2023, IRDAI capped commissions on a product-by-product basis. Then it switched to a single umbrella: an overall Expense of Management (EoM) limit. Under the IRDAI (Payment of Commission) Regulations, 2023, effective April 1, 2023, insurers could set commissions through a board-approved policy, as long as total expenses stayed within the cap (up to 30% of gross premium for general insurers and 35% for standalone health insurers).

What happened next was predictable. Insurers cut their own operating costs and redirected the savings into commissions, because commissions buy distribution, and distribution buys growth. The regulator’s own diagnostic paper found that between FY23 and FY25, payouts to life insurers’ corporate agents rose about 125% (from roughly ₹9,580 crore to ₹21,600 crore), and general insurance broker commissions rose about 173% (from roughly ₹6,348 crore to ₹17,348 crore) far faster than premiums grew.

You can see it clearly in ICICI Lombard’s numbers. Its commission ratio rose from 3.0% in FY23 to 17.0% in FY24, while its operating expense ratio fell from 29.1% to 15.5%. The money didn’t disappear; it just moved lines. Go Digit’s management said it bluntly on its July 2026 earnings call: “Because of EOM, the commissions have actually gone up.”

The Trend, Company by Company

General insurers (net commission as % of net written premium)

Go Digit, which sells heavily through motor dealers and point-of-sale agents, pays nearly a third of its premium out as commission. ICICI Lombard sits lower. Star Health, whose sales force is largely its own, says it is already operating within EoM limits.

Life insurers (commission as % of first-year premium)

HDFC Life’s first-year commission rate more than doubled in two years. Max’s rose by two-thirds. Commissions on single-premium policies climbed too, from 1.6% to 13.9% at HDFC Life between FY23 and FY26, and from 1.5% to 11.1% at Max between FY24 and FY26.

The regulator’s paper found even more extreme numbers across the industry: first-year commissions on pure term plans running as high as 81%, motor commissions averaging 26% (up to 75%), and NBFCs earning an average 42% payout on the life insurance they sell alongside loans. Credit-life commissions alone jumped from 5% in FY23 to 28% in FY25.

What IRDAI Is Proposing

The consultation paper, open for comments until October 25, 2026, tries to put a lid on all of this. The main proposals:

• Tighter expense limits. Life insurers’ EoM would fall to 15% of premiums within two years and to 12.5% within five years. General insurers would go to 25% in two years and 20% in five.
• Hard commission caps, product by product, replacing board-approved discretion. A few examples for distribution entities:
  • Motor third-party: nil on new policies (the regulator’s view is that a mandatory product needs no selling effort)
  • Motor own-damage: 5% on new policies
  • Individual health: 15% in the first year, 5% on renewal
  • Loan-linked insurance: roughly 2-5%
• No sneaking it in elsewhere. “Technology, awareness and related spends” would count inside the commission cap closing the usual workaround.
• No forced bundling. Lenders could no longer make insurance compulsory with a loan.
• A new distribution structure. Brokers, corporate agents, web aggregators and similar players would be folded into a single category of “Insurance Distribution Entities,” with individual agents and PoSPs in a separate tier.
• More disclosure, including a public “Know Your Distributor” registry and cost audits for large distributors.

Industry estimates suggest commissions on new life, health and motor business could fall by a third to a half.

How the Market Reacted

The market sorted winners from losers almost entirely by where each company sits in the commission chain.

Distributors took the full hit. For PB Fintech, a commission cut is a revenue cut. Macquarie estimates that just a 2-percentage-point squeeze on its take rate could reduce EBITDA by about 25%; that take rate, share of each premium rupee that Policybazaar keeps as its own revenue, stood at 18.5% on core online insurance in Q1FY27. 

Life insurers fell in proportion to how much they depend on others to sell for them. Max and HDFC Life fell most. Both sell more than half their business through partners: bancassurance was 57% of HDFC Life’s Q1FY27 distribution mix, and partner channels (led by Axis Bank) were 53% of Axis Max Life’s, against 27% from banks at ICICI Pru Life (Motilal Oswal; ICICI Securities). Both also pay steep first-year commissions – 38.7% and 31.0% respectively in FY26 – and analysts quoted by IndMoney flagged the pair as the most distributor-dependent. SBI Life, which sells through SBI’s branch network and has the most expense headroom, barely moved.

General insurers rose because for them lower commissions mean lower costs and better margins. ICICI Lombard’s management had said as early as April that any revised mandate would be “extremely positive” for it.

The Takeaway

The simplest way to read this reform is that it moves money from the middle of the chain to the two ends: away from distributors, and towards insurers’ margins and policyholders’ pockets. The market priced exactly that in a single session.

But it’s worth resisting the urge to call it settled. Three things could change the picture:

1. This is a consultation, not a rule. Final caps could be softer, transitions longer, or the structure different. PB Fintech’s CEO has already argued that brokers are legally required to do the most work in a sale, and shouldn’t face the lowest caps.
2. Lower costs don’t help if volumes fall. Motilal Oswal expects near-term growth to be challenged even if margins improve later, and ACKO’s CEO predicts a 10-20% correction in commission-heavy business. Emkay warns sharp cuts could make distribution unviable in places which would hurt insurers too. For a company like Go Digit, whose growth depends on intermediaries, cheaper distribution and less distribution could arrive together.
3. Distribution models will adapt. Expect a push towards proprietary channels, digital sales, renewals, and value-added services which favours companies that already own their customer relationships.

For now, the dividing line is clear: companies that pay commissions have had a better week than companies that earn them. Whether that holds depends on how much of the proposal survives the October 25 deadline and how quickly the industry learns to sell insurance for less.

We at Windmill are tracking this closely, from the consultation feedback and IRDAI’s final rules to how each insurer and distributor responds in its coming results, and will share updates as the picture becomes clearer. 

Sources

Regulatory

• IRDAI, Consultation Paper on Distribution Reforms, Parts 1 and 2 (September 2026). Part 2
• AZB & Partners, Liberalisation of Norms Governing Payment of Commissions by Insurers, on the IRDAI Payment of Commission Regulations, 2023

Earnings call transcripts (Q1FY27, via LSEG StreetEvents)

• ICICI Lombard, HDFC Life and ICICI Prudential Life (July 15, 2026)
• Go Digit General Insurance (July 23, 2026)
• Star Health and Allied Insurance (July 29, 2026)
• PB Fintech (August 5, 2026)
• Max Financial Services (August 13, 2026)

Broker research (Q1FY27 results updates)

• Motilal Oswal: ICICI Lombard and HDFC Life (July 15, 2026); Star Health (July 30, 2026); PB Fintech (August 5, 2026); Max Financial Services (August 13, 2026)
• ICICI Securities: ICICI Prudential Life (July 20, 2026)
• Emkay Global and Ambit Capital: Go Digit (July 24, 2026)
• PhillipCapital: Max Financial Services (August 13, 2026)

News and market coverage (September 2026)

• IndMoney
• Marketcalls
• Business Today
• Business Standard
• Investment Guru India

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