Mumbai: The Insurance Regulatory and Development Authority of India (IRDAI) has proposed wide-ranging changes in insurance distribution rules to make the process of buying and servicing insurance more transparent, competitive and customer-friendly.

The insurance regulator has released a paper titled ‘Recalibrating Economics of Insurance Distribution’, which covers insurance distribution structures, expenses, commissions, market conduct, transparency and digital infrastructure.

IRDAI has invited comments and suggestions from stakeholders, and the consultation process will be open until October 25.

The proposed reforms are aimed at creating a “customer-centric, competitive, efficient and transparent distribution ecosystem”, IRDAI said.

Those who are interested in buying insurance policies, the proposed changes will mean greater clarity about who is selling them the policy, how distributors are paid, no forced bundling and stronger safeguards against mis-selling.

IRDAI is seeking a simpler structure that will make it easier for customers to understand who they are buying insurance through. The proposed structure will also regulatory and operational constraints while expanding participation in insurance distribution.

It will bring greater clarity for the policyholder about the role of the intermediary involved in selling or servicing the policy.

As for commissions paid to insurance distributors, which is often a grey area, IRDAI has proposed that insurers and large distribution entities disclose their commission policies and structures in a simple and accessible manner. Certain commercial policies will carry commission disclosures as well, if the proposals are accepted.

According to the insurance regulator, this will allow customers to understand distribution costs built into the pricing of insurance products and make more informed choices.

The consultation paper also deals with an important issue of mis-selling, and how to tackle it.

IRDAI has proposed documenting customer needs and suitability, and bringing all forms of remuneration, direct or indirect, monetary or non-monetary, within the definition of commission for regulatory purposes.

There is a proposal to prohibit volume-linked or reward-linked incentive for bank and NBFC employees selling insurance. The proposals also include linking identity of the individual to the policy sold, placing information on mis-selling incidents in public domain and allowing commission claw-back in cases of mis-selling.

That will help consumers as it greaters accountability for the person selling the policy.

IRDAI wants tracking of ‘dark patterns’ and making relevant performance information available to strengthen market discipline.

Another consumer-focused proposal relates to the practice of bundling insurance with other financial products and services. IRDAI wants stronger safeguards against compulsory bundling of insurance with other financial products and services.

This will also help address mis-selling and improve accountability in insurance distribution.

There will be more digital options to buy and serve policies if IDAI’s proposals are implemented.

IRDAI has proposed Market Infrastructure Institutions (MIIs) as digital, pull-based alternatives for insurance distribution, with Bima Sugam identified as one such infrastructure. It has also proposed greater use of the Public Insurance Registry (PIR) to support transparency, comparison, portability and operational efficiency.

These digital channels are intended to make buying and servicing insurance easier, expand consumer choice and improve access to insurance, including for currently underserved segments.

According to IRDAI, a simpler distribution structure could improve competition, lower structural costs could support affordability, better-aligned remuneration could strengthen incentives for quality advice and service, greater transparency could improve customer choice, and digital infrastructure could reduce transaction costs and provide more direct access to insurance.

Motor insurance

Buying motor insurance could also change significantly. IRDAI wants customers buying a new vehicle to be given a clearer option to purchase insurance through digital platforms, while also proposing changes to the way motor dealers distribute policies and earn commissions.

The proposals come in the backdrop of a sharp increase in motor insurance commissions, which grew by around 34% between FY23 and FY25, while commissions increased by around 259%.

IRDAI wants motor insurance products for both new and old vehicles to be available on MII platforms such as Bima Sugam.