IRDAI proposes commission caps and dark pattern ban

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a new regulatory framework aimed at curbing high acquisition costs and improving policyholder value. The consultation paper, titled ‘Recalibrating Economics of Insurance Distribution’, suggests tighter limits on Expenses of Management (EoM) and a return to hard caps on commissions.

For life insurers, the proposal outlines a phased reduction of EoM to 15% within two years and 12.5% within five years. General insurers would see a gradual move from 30% of Gross Written Premium to 20% of Domestic Gross Direct Premium Income over five years. The regulator noted that distributor remuneration in the life insurance corporate agency channel grew 125% between FY23 and FY25, significantly outpacing new business premium growth.

Additionally, the IRDAI aims to ban ‘dark patterns’ on insurance websites, ensuring customers can access pricing and product features without first providing personal details. The framework also proposes reorganizing distribution into specific entities and linking commissions to product complexity and servicing effort. Following the announcement, insurance stocks faced selling pressure, with PB Fintech dropping 26.01% and Max Financial Services declining 11.25%.