Recalibrating Distribution Economics to Widen Insurance Coverage

Chhavi Singh and Chinmayi Lanka

October 29, 2026

Report

EXECUTIVE SUMMARY

IRDAI’s September 2026 consultation paper proposes the biggest reset of insurance distribution economics in years. It responds to a real problem: since the 2023 deregulation, distributor pay has risen 4 to 5 times faster than premium and concentrated in the channels that control the point of sale, with little gain to the customer. Expense ratios have climbed to 16% in life and 31% in general insurance, above the levels the reform now targets, while the number of people covered has barely moved.

The direction is sound and the cost discipline is overdue. The difficulty is that the proposed commission caps are largely channel-agnostic. They compare channels on commission alone, and apply the same cut to an embedded, low-effort sale as well as to the assisted channels that find, convince and service first-time customers in underserved markets. This report sets out, with data, where the caps fall furthest below what distribution actually costs, and which insurers and sellers are most exposed as a result.

Across six sections it traces distribution cost, customer acquisition, servicing, market structure, the limits of direct-digital, and the coverage growth that Insurance for All by 2047 requires. It closes with a set of considerations for the final framework: calibrations that keep the discipline while protecting the distribution that widens coverage.

WHAT THE REPORT COVERS

Why distribution costs rose, and why containing them differs by channel. How pay outran premium after 2023, and why a single cap affects embedded, assisted and open-architecture channels very differently.

Whether the caps leave room to acquire new customers. Coverage has grown slowly and private cover is concentrated in richer states; the report tests the first-year caps against what assisted acquisition actually costs.

How servicing across the policy lifecycle is rewarded. Weak persistency and rising claims grievances against caps that are set largely by reference to the initial sale.

How tighter economics could concentrate the market. Which insurers must adjust most, why the burden falls on mid-size, smaller and newly licensed players, and what the absence of a transition for the caps implies.

Why direct-digital channels are unlikely, on their own, to widen coverage. Insurance as a push product, the economics of online acquisition, and the role of Bima Sugam and the Public Insurance Registry.

What Insurance for All by 2047 actually requires. The coverage growth needed, the distribution capacity it rests on, and the measures that would show whether the reform is working.

REDSEER PERSPECTIVE AND STRATEGIC TAKEAWAYS

Redseer believes in the direction of the reform, and holds that a reform built for “Insurance for All” must cut cost without thinning the distribution that actually widens coverage. Our analysis points to three calibrations in particular.

First, the sellers who reach beyond the metros are squeezed hardest, because first-year caps sit below what first-time acquisition costs in those geographies; first-year limits set closer to the real cost of acquisition would keep that channel viable. Second, a flat cap judges a seller on commission alone and misses the effort and cost a PoSP-led channel takes on, so judging channels on their total cost to the insurer would cut the waste without underpaying genuine selling. Third, the caps arrive with no transition, unlike the expense-of-management limits, so a matching glide path, compliance costs scaled to the size of the intermediary, and monitoring of whether new insurers can still reach customers would phase the adjustment without thinning distribution.

Alongside these, the report sets out further calibrations on servicing and renewals, outcome-linked conduct, open-architecture disclosure, and the measures the outcome framework should track, so that greater efficiency also moves India closer to Insurance for All by 2047.