The regulator has asked insurers to separately disclose operating expenses, net of commissions as a percentage of premium, a metric it has not previously monitored independently. Until now, Irdai has primarily tracked insurers’ overall Expenses of Management (EOM), which combines commissions and operating expenses within a single regulatory limit.
The move comes ahead of the regulator’s proposed discussion paper on distribution reforms, expected by the end of July. While the paper is unlikely to prescribe commission rates, it is expected to lay down broad principles governing the distribution architecture, customer outcomes and remuneration. Product-wise commission structures are expected to be addressed separately at a later stage after wider consultations.
“The regulator has always looked at overall Expenses of Management, which combines commissions and operating expenses. This is the first-time insurers have been asked to isolate operating expenses from commissions,” said a senior insurance executive familiar with the discussions.
The latest data request shows that the regulator is examining whether reducing the overall cost of distributing insurance requires scrutiny rather than commissions alone.
Traditionally, commissions account for around 55-60% of insurers’ acquisition and operating costs, with the remainder comprising employee expenses, technology investments, branch infrastructure, administration, underwriting, servicing and other operating costs. Over the past year, industry discussions have largely centred on commission rationalisation following the implementation of the new EOM regulations. However, the regulator now believes lowering commissions alone may not materially reduce policy costs if insurers continue to incur high operating expenses.
“The thinking appears to be that if the objective is to make products cheaper for customers, operating expenses also need scrutiny. Merely cutting commissions will not fully translate into lower product costs if the rest of the expense structure remains elevated,” another industry executive said.The regulator’s exercise also comes against the backdrop of observations made by the Reserve Bank of India in its June 2026 Financial Stability Report (FSR), which showed a growing divergence in the cost structures of public and private life insurers.
According to the RBI, private life insurers have nearly doubled their commission expense ratio from around 4.5% in 2021-22 to 9.1% in 2025-26, as they relied on commissions to expand distribution, while public sector insurers have seen only a marginal increase in commissions over the same period.
Also, Irdai is likely to adopt a phased approach to the distribution reforms, sources said.
