Will Insurance Premiums Get Cheaper? 5 Proposed Changes Buyers Should Know

IRDAI's Insurance Overhaul Proposal: Buying insurance could become more transparent and, potentially, cheaper. But there is another side to the proposed changes that policyholders need to watch.

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a major overhaul of how insurance is sold in India. The plan includes caps on commissions paid to agents, banks and brokers, lower expense limits for insurers and tighter rules to prevent mis-selling.

The proposals are still being discussed and could change after feedback from the industry and other stakeholders. But the question is -- if implemented, will these changes actually reduce the cost of insurance and make buying a policy easier?

Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay

Your Insurance Premium Could Come Under Pressure

A large part of the cost of selling an insurance policy goes towards distribution. IRDAI has proposed bringing back product-level commission caps. The regulator had removed such caps in 2023.

Under the new proposal, commissions would vary depending on the type of policy, distribution channel, policy size and the effort required to sell and service it. For example, commissions on several life insurance products could be significantly lower than the levels currently seen. Health insurance commissions would also face tighter limits. For third-party motor insurance on new vehicles, the proposal is for no commission to be paid.

If it costs insurers less to sell a policy, there could eventually be room for lower premiums. But lower commissions do not automatically mean lower premiums. Insurers would still have to pass those savings on to customers.

Kunal Gupta, Co-founder and CEO of EMotorad, told NDTV commission caps could reduce the cost of distributing insurance, but the benefit to customers would depend on whether insurers pass on those savings.

"For a customer buying an electric cycle, insurance should be an informed choice," Gupta said. "They should be able to see clearly what the policy covers, what it costs and how to make a claim."

He added that a simpler and more transparent buying process could help customers choose insurance based on the protection it provides rather than the incentive behind the sale.

Banks May Not Be Able To Push Insurance With Loans

IRDAI wants to prohibit compulsory bundling of insurance with credit or loans. Banks could still offer insurance along with a loan in permitted combinations, but customers would have greater clarity about the cost of both products.

If a bank offers a lower loan rate when insurance is purchased, the proposed framework would require greater disclosure and allow the customer to buy insurance from any insurer.

For consumers, this could make one thing easier: understanding whether the insurance is genuinely needed or is simply being added during the loan process.

The regulator has also proposed restrictions on volume-linked and reward-linked incentives for bank and NBFC employees selling insurance. 

Will You Get Better Advice Before Buying?

The proposals seek greater transparency around commissions and distributor remuneration. They also aim to move the industry towards more need-based distribution.

Shivendra Pancholi, Executive Director at Coverfox, told NDTV that greater transparency around pricing and commissions, along with restrictions on practices that can influence purchase decisions, could help consumers make more informed choices.

"Greater transparency around pricing and commissions, restrictions on practices that can influence purchase decisions, and a move towards need-based distribution can help customers make more informed choices," Pancholi said.

He added that the longer-term opportunity for customers is a more transparent marketplace where product suitability, affordability and service quality have a greater role.

But There Could Be A Problem For Small-Ticket Insurance

This is where the consumer story gets complicated.

Selling a Rs 5,000 or Rs 10,000 policy can require almost as much effort as selling a much larger policy. If commissions fall sharply, distributors may have less incentive to sell smaller policies or operate in areas where insurance demand is lower. This could affect products such as two-wheeler insurance, particularly in smaller cities and towns.

Indraneel Chatterjee, COO and Co-Founder of InsuranceDekho, told NDTV that the impact needs to be viewed beyond just the potential reduction in costs. "If distribution economics become challenging for lower-ticket policies or in smaller cities, distributors may be forced to concentrate on larger cities and higher-value products," Chatterjee said.

This could create gaps in access, particularly for products such as two-wheeler insurance, where penetration remains low, he added.

Your Claim Support Could Also Be Affected

There is another part consumers often think about only after buying a policy: service.

A policy may look cheap when you buy it. But the real test comes when you need to renew it, change details or file a claim. If distributors earn less from policies, there could be pressure on the level of post-sale support they provide.

Chatterjee said the proposed changes could affect "post-sale support available to customers, including assistance during servicing and claims". This does not mean claims will become harder under the proposed rules. Rather, it highlights a possible trade-off that regulators and the industry will need to address as the framework takes shape.

What Happens To Insurance In Smaller Cities?

IRDAI's proposal does recognise the importance of expanding insurance beyond large cities.

The proposed framework includes additional commission provisions for policies sold in smaller towns and rural areas. This is intended to encourage distribution where insurance penetration is lower. 

But distributors say the economics will still matter.

"If the intent to reduce costs and strengthen consumer protection is important, the framework should ensure that these objectives are balanced with customer choice, distribution reach and support across geographies and product segments," Chatterjee said.

The proposed reforms are ultimately trying to change the economics of insurance distribution. The consumer benefit will depend on what happens next. As Pancholi put it, the success of the reforms will depend on balancing cost efficiency with enough incentive for distributors to continue expanding insurance access across India.