Proposed 5% Commission Cap on Property and Engineering Risks Above Rs 2,500 Crore: How Mega-Risk Placements Could Change

IRDAI's consultation paper on commission and expenses of management proposes moving away from a single insurer-level envelope toward limits that vary by segment, line of business, channel, product complexity and the selling and servicing effort involved (BusinessToday, 25 September 2026). For the largest commercial risks, Medianama's 30 September 2026 summary of the paper lists a specific proposed cap: commission on property and engineering risks above Rs 2,500 crore would be limited to 5% for Insurance Distribution Entities and 5.5% for agents.

That single line matters more than its length suggests. Large industrial property programmes, infrastructure portfolios and project covers such as contractors all risks and erection all risks are large-ticket accounts for Indian broking houses, and they are where the service load (surveys, wording negotiation, reinsurance-backed capacity, claims advocacy) is heaviest.

The proposal sits inside a wider tightening. The expenses of management (EoM) ceiling for general insurers would fall to 25% of domestic GDPI within two years and 20% within five, with FY2027-28 treated as Year 1 (Medianama, 30 September 2026; bestworstinsurance.com citing Box 2 of Part 1 of the paper). A segment cap on mega risks is one of the ways the paper allocates that shrinking envelope.

Comments on the paper are due by 25 October 2026 (Mondaq / Tuli & Co, 30 September 2026). Nothing described here is in force yet.

Before anyone models the impact, one definitional gap needs closing. Medianama's summary does not say whether the Rs 2,500 crore threshold refers to sum insured or to premium, and a synthesis of the coverage flags that the threshold should be checked against Part 1 of the paper itself. The two readings produce very different populations of affected risks.

Reading 1: sum insured above Rs 2,500 crore

On this reading the cap catches a broad band of large Indian risks: integrated steel and cement plants, refineries and petrochemical complexes, large power stations, ports, data centre campuses, and many single-site manufacturing facilities with high replacement values. It would also catch most large CAR and EAR policies on infrastructure and industrial projects, where the contract value drives the sum insured. This is the reading that would touch a meaningful slice of the corporate property book.

Reading 2: premium above Rs 2,500 crore

A Rs 2,500 crore premium threshold for a single risk or programme would apply to very few, if any, Indian placements. On this reading the clause would be close to symbolic for the domestic market. Because the gap between the two readings is so large, the definition is the first thing a broker, insurer or corporate buyer should seek clarity on, and the most useful single point to raise in a comment before 25 October.

The arithmetic is simple; the consequences are not. Take an illustrative industrial property programme with a sum insured well above Rs 2,500 crore and an annual premium of Rs 10 crore. At the proposed 5% cap for a distribution entity, insurer-paid remuneration cannot exceed Rs 50 lakh. If the same account currently carries a higher commission under the insurer's board-approved policy, the difference comes straight out of the broker's revenue on that account.

The cost side does not shrink with the cap. A competent large-account placement still needs:

• A risk engineering survey and report credible enough for lead insurers and reinsurers to price from.
• Marketing to a domestic panel and, where facultative support is needed, to reinsurance markets.
• Wording negotiation, including business interruption extensions, escalation clauses and debris removal limits.
• A claims function that can handle a large fire or machinery loss through survey, adjustment and settlement.

Project covers are more exposed still. CAR and EAR policies often run for multi-year construction periods with a single upfront or instalment premium, while the servicing (periodic site surveys, extensions of period, testing and commissioning endorsements, claims during construction) runs for the full project life. A 5% ceiling on the premium spread over three or four years of service makes some project mandates thin on insurer-paid revenue alone.

The likely outcome is that brokers sort large accounts into those where the capped commission still covers cost and margin, and those where it does not. The second group is where the conversation with the client changes, which is the subject of the rest of this post. For the broader picture on specialty margins, see our analysis of specialty lines brokerage economics.

A lower commission ceiling does not automatically mean a lower premium. Whether buyers see a rate benefit depends on three things the draft does not settle on its own.

1. Where the insurer sits against its EoM ceiling. With the overall limit proposed to step down to 25% and then 20% of domestic GDPI, insurers under pressure on expenses may use any commission saving on mega risks to absorb the tighter envelope rather than to cut rates. A saving that keeps an insurer compliant is a saving that never reaches the client.
2. How large risks are actually priced. Large property and engineering pricing in India is heavily influenced by reinsurance terms and treaty capacity. Distribution cost is one component, and on many mega placements it is not the one that moves the rate.
3. Competition on the account. Where several insurers want the risk, the commission saving is more likely to show up in the quote. Where capacity is scarce, it is more likely to stay with the insurer.

The practical implication for risk managers is to ask, rather than assume. When a renewal is quoted after a cap is notified, request that the insurer show the commission component and confirm whether the quote moved when the commission did. This is easier on a net-of-brokerage placement, where distribution cost is already separated from the risk price.

The consultation paper also states that commission limits should reflect selling and servicing effort. A specific 5% cap on mega risks suggests the paper sees large risks as needing less selling effort per rupee of premium. Brokers who disagree should document the servicing effort on these accounts in their comments.

If the cap is notified in its draft form, the most important document on a large account becomes the broker mandate, not the commission statement. Large-account mandates are often loosely written when commission has quietly funded everything. Under a capped regime, the mandate needs to say what the broker will do, how much of it is funded by insurer commission, and what is paid for separately.

Core placement services

These are the services the capped commission is most clearly meant to remunerate: risk presentation, market approach, quote analysis, placement, documentation and policy issuance, routine endorsements and renewal management. A mandate should list them explicitly so both sides can see what the commission buys.

Value-added services that may need separate terms

The services most at risk of being cut under a cap are the ones clients value most on large risks:

• Risk engineering: pre-renewal surveys, loss prevention recommendations, follow-up on recommendation closure, and fire protection reviews. Our guide to risk engineering survey prioritisation sets out how to scope these by site.
• Claims advocacy: support from first notice through surveyor appointment, interim payments, quantification and final settlement on large losses.
• Programme design: deductible studies, limit adequacy, valuation reviews and business interruption modelling.
• Project support: site visits during construction, extension negotiations and handover from CAR or EAR to operational cover.

Whether these services are paid by client fee, by a net placement with a disclosed fee, or bundled within the capped commission is a commercial choice. The point is to decide it in writing before renewal, not to discover after a loss that claims advocacy was never in scope.

Corporate buyers have a short window to influence the final text and a longer window to prepare for it.

Before the comment deadline

1. Check with your broker and lead insurer whether your largest property or project programmes would fall above Rs 2,500 crore on a sum insured reading.
2. If you have a view on the threshold definition, aggregation rules, or how multi-year project policies should be treated, route it through your industry association or submit it directly by 25 October 2026.
3. Ask your broker for a current split of commission earned on each large programme and the services delivered against it.

After a final regulation is notified

1. Review every large-account mandate and attach a service schedule that names risk engineering visits, claims support commitments and response times.
2. Decide which accounts move to a fee or net structure, and budget for it.
3. At renewal, ask insurers to show whether a lower commission has changed the rate.
4. Re-tender broker mandates where the incumbent's service scope shrinks without a matching conversation.

The mega-risk cap is one piece of a consultation that also reshapes the overall EoM envelope. Read together, the direction is clear even if the final numbers change: less total room for distribution cost across the general insurance market, more differentiation by line and channel, and a stated link between remuneration and the selling and servicing effort a product requires (BusinessToday, 25 September 2026).

For large-risk distribution that points toward three likely shifts, all conditional on the final text:

• More fee-based and net placements on accounts where capped commission no longer funds the service model.
• Sharper broker specialisation, with firms that have genuine engineering and claims capability charging for it explicitly, and others stepping back from mega risks.
• More attention to project insurance economics, at a time when demand for project covers is rising with industrial and infrastructure capex. Our note on the capex cycle and engineering insurance demand covers that side.

None of this is final. The threshold definition is unresolved in public coverage, the paper is open for comments until 25 October 2026, and implementation timing will depend on the notified regulation. Brokers and buyers who use the comment window to get the definition fixed, and the months after to rewrite mandates around service scope, will be in the best position whatever the final cap turns out to be.