IRDAI's Commission Overhaul Consultation: What Is on the Table and How Brokers Should Prepare Their Response

According to Business Standard reporting of 3 July 2026, IRDAI is preparing an overhaul of insurance commission rules aimed at curbing mis-selling, with a consultation paper expected by the end of July 2026 per IRDAI Chairperson Ajay Seth. Everything under discussion is at proposal stage; nothing described here is an in-force rule. But the reported scope is broad enough that broking CEOs should treat the consultation as a first-order strategic event.

Four ideas are reportedly on the table:

1. Staggered or trail commissions spread over the life of the policy instead of concentrated upfront payouts. On some life and health products, upfront commission can reach roughly 40 percent of first-year premium, a structure the regulator associates with sell-and-forget behaviour.
2. Effort-based remuneration that pays more for face-to-face advisory, documentation assistance, and claims servicing than for passive distribution such as bank add-on sales where the product rides on another transaction.
3. Possible caps differentiated by product type, tenure, and complexity, a more surgical instrument than the flat product-wise caps that existed before 2023.
4. Tighter disclosure of remuneration to policyholders and the regulator.

The timing is not accidental. The IRDAI (Payment of Commission) Regulations, 2023 removed product-wise caps and left commission to board-approved insurer policies inside the EOM envelope of the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024 (roughly 30 percent of gross written premium for general insurers, 35 percent for standalone health insurers). The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, in force from 5 February 2026, restored IRDAI's statutory power to cap distributor commissions. The consultation is the regulator deciding how, and how far, to use that restored power. Three years of flexible commissions produced enough mis-selling complaints, particularly in bancassurance-driven life and health sales, that some re-regulation is now the base case.

Of the four ideas, staggered or trail commission has the largest mechanical effect on a broking P&L, because it changes not how much a broker earns but when.

Work the arithmetic on a simple case. A broker places a retail health portfolio generating INR 5 crore of annual commission under the current structure, weighted toward first-year payouts. Suppose a trail regime converts a payout pattern of 30 percent of premium in year one and 5 percent on renewal into, say, 12 percent per year across a five-year expected policy life. Total remuneration over the life can be identical, but year-one cash collapses to roughly 40 percent of its former level. For a growing broker, the gap compounds: every new policy written funds less of this year's cost base, and the firm effectively lends its acquisition cost to the future.

Three balance-sheet consequences follow:

• Working capital need rises. A firm growing new business 25 percent annually under a trail regime needs 18 to 30 months of bridge funding before renewal trails stack up to replace lost upfront income. Firms without credit lines or capital reserves will feel this as a solvency question, not an accounting one.
• The book becomes an asset. Trail streams attached to persistent policies are valuable, measurable annuities. Renewal retention moves from a service metric to the core driver of firm value, and acquisition of brokers with sticky books becomes more attractive, likely accelerating consolidation.
• Persistency risk transfers to the distributor. If the client lapses in year two, the unearned trail simply never arrives. Brokers with weak servicing and poor persistency will discover their real economics quickly.

Commercial lines brokers are less exposed than retail and life-adjacent firms, because commercial policies are annual and commission is already effectively paid per period. But any broker with a retail health, group credit-linked, or long-term product book should model a trail scenario on its own cash flows before the consultation closes, because the modelling output is exactly the evidence a credible submission needs.

The second idea is that remuneration should track the work performed for the policyholder: more for face-to-face advisory, needs analysis, documentation help, and claims servicing; less for passive channels where insurance is an add-on to a banking or lending transaction.

For brokers, this is the most strategically favourable proposal on the table, and the industry should say so clearly. A broker's regulatory identity, unlike a corporate agent's, is built on representing the client: comparing quotes across insurers, structuring the programme, and advocating at claim time. A remuneration philosophy that pays for advisory effort and claims support rewards exactly what differentiates broking from bank add-on distribution.

The hard part is measurement, and the consultation will stand or fall on it. Questions a broker's submission should press:

• What counts as evidence of advisory effort? Documented needs analysis, quote comparison records, and recorded advice trails are auditable; "face-to-face" alone is not, and rewarding physical meetings over well-documented remote advice would be perverse.
• Who assesses the effort, the insurer paying the commission or the regulator? Insurer-side assessment creates an obvious conflict where carriers grade the intermediaries they negotiate with.
• How is claims servicing valued on lines where claims are rare? A fire placement may see no claim for a decade; the servicing value sits in programme design and renewal discipline.

There is also an operational implication that firms should start on now regardless of the outcome: effort-based pay requires effort records. Brokers whose advice, documentation support, and claims interventions live in email threads and phone calls cannot evidence anything. Firms that log client interactions, advice given, and claims actions in a system, with timestamps, will be able to claim the higher tier of any effort-linked structure. That capability takes quarters to build and pays off even in the no-change scenario, because it is the same record that defends a mis-selling allegation.

The third strand is a possible return of caps, but differentiated by product type, tenure, and complexity rather than the flat pre-2023 schedule. A simple, commoditised, short-tenure product (standalone travel, motor own-damage) would carry a low cap; a complex, long-tenure product needing genuine advice could carry a higher one.

For commercial brokers the differentiation logic cuts favourably in principle: large-risk property, liability, and marine programmes are the definition of complexity. The risk is in the drafting. If complexity is defined by product category rather than by the placement's actual character, a mid-market package policy could be classed as simple even where the broker performed substantial programme design. Submissions should push for complexity tests that reference the placement (sum insured bands, number of insurers approached, degree of customisation) rather than product labels alone.

The fourth strand, tighter remuneration disclosure, is the most certain to survive consultation in some form, because it aligns with the June 2026 draft IRDAI (Insurance Intermediaries) (Amendment) Regulations, which already propose a separate financial-statement schedule for intermediation revenue and other receipts from insurers, audited filings to IRDAI by 30 September, and website publication. Brokers should assume that whatever emerges on structure, per-placement or per-product remuneration transparency to the policyholder is coming, and that the firm-level disclosure infrastructure being built for the intermediary amendment will be the same plumbing that serves it.

Boards respond to numbers, so model the proposals against a concrete firm. Take a composite mid-tier broker: INR 400 crore premium handled, INR 48 crore total revenue, of which INR 20 crore is retail health and life-adjacent (upfront-weighted), INR 24 crore is annual commercial lines, and INR 4 crore is fees. Operating cost INR 36 crore, EBITDA INR 12 crore.

Trail scenario. Retail upfront income restructures over five years. Year-one retail revenue falls by roughly 50 to 60 percent on new business while renewals build; the transition-year revenue dip is on the order of INR 6 to 9 crore depending on growth rate and persistency. EBITDA turns marginal or negative for 12 to 24 months, then recovers on stacked trails, with the recovered book more defensible than before. The management question is bridge financing and cost phasing, not viability.

Effort-based scenario. Commercial and advisory-heavy retail revenue holds or improves; passive-adjacent income (group credit-linked placements with thin service content) compresses. Net effect for this composite is mildly positive if, and only if, the firm can evidence effort. Without interaction records, the same firm defaults into lower tiers and loses perhaps 10 to 15 percent of commission income.

Differentiated caps scenario. Impact concentrates where current rates exceed plausible caps: retail health at the top of current board-approved schedules. A cap regime aligned to tenure and complexity might trim the composite's revenue 5 to 10 percent, less than the 2024 EOM squeeze already absorbed, unless commoditised commercial package business is classed as simple, in which case the hit widens.

Status quo scenario. The consultation yields disclosure tightening only. Cost is operational (reporting build), revenue effect near zero in the short run, but public remuneration data reshapes client negotiation over two to three years.

No single scenario justifies panic; the combination justifies preparation. The firms hurt worst in prior reform cycles modelled nothing and negotiated from anecdote.

A consultation response is only as strong as the evidence behind it, and evidence takes longer to assemble than the typical 30 to 60 day comment window allows. Build the pack now, in five pieces.

1. Revenue decomposition. Commission by line, by insurer, by payout timing (upfront versus renewal), for the last three financial years. This is the base layer for every scenario model and the first thing a board will ask to see.
2. Persistency and renewal retention. Policy-level retention by line and cohort. Under a trail regime this is the firm's future revenue; in a submission it demonstrates that the firm's sales persist, which is the regulator's own definition of clean selling.
3. Activity costing. Time and cost per placement across segments: hours on needs analysis, quoting, documentation, endorsements, claims. Even a one-quarter sampling study gives the firm real numbers on what advisory effort costs, which is the exact quantum an effort-based framework needs to price. Almost no Indian broker has this data; any firm that does will punch far above its weight in consultation.
4. Claims servicing record. Claims intimated, followed, disputed, and settled with broker involvement, with outcomes. This evidences the servicing value that effort-based remuneration is supposed to reward.
5. Cash-flow model. The trail-transition model from the scenario work, showing the working-capital bridge a staggered regime would demand for a firm of your profile, and the transition period (phase-in by product cohort, grandfathering of in-force business) that would make it absorbable.

Assign each piece an owner and a deadline ahead of the expected end-July paper. The same pack serves the submission, the board, and insurer negotiations once new rules land.

Regulatory submissions from intermediaries usually fail the same way: they read as revenue defence. IRDAI's stated objective is curbing mis-selling; a submission that never engages with that objective is discounted on arrival. The playbook that works is different.

Concede the problem, own the distinction. Acknowledge upfront-heavy structures on some life and health products (payouts approaching 40 percent of premium) have produced bad selling. Then distinguish the broking model, where the intermediary owes duties to the client, from passive add-on distribution, and support the distinction with your persistency and claims-servicing data.

Support direction, contest design. Back effort-based remuneration in principle while pressing the measurement questions: auditable evidence standards, independent assessment, complexity tests keyed to the placement rather than the product label. Back disclosure while asking for formats aligned with the intermediary amendment draft so firms build one reporting stack, not two.

Quantify transition, do not resist it. On trail commissions, the winning argument is not "do not do this" but "here is the working-capital mathematics, phase it in by product cohort over three years and grandfather in-force business." Regulators can accommodate transition design; they rarely accommodate refusal.

File twice. Submit through the Insurance Brokers Association of India for collective weight, and file a firm-level response carrying your own data. Individual submissions with real numbers are rare enough to be read.

Prepare for the outcome regardless. Whatever the final rules, three investments pay off in every scenario: interaction and effort logging, renewal retention discipline, and a working-capital plan. Start them before the paper is published, and the consultation becomes an event the firm shapes rather than one it absorbs.