IRDAI proposed lower insurance commissions and tighter spending limits; public sector banks expect only a minor impact on earnings.

The regulator released the draft on 23 September 2026 in a paper called Recalibrating Economics of Insurance Distribution.

It is open for feedback until 25 October and is not final. IRDAI found that fees paid to sellers have grown far faster than the business they bring in.

For life insurance sold through banks and other corporate agents, new premiums rose 28% between FY2022-23 and FY2024-25, while total payments to sellers climbed 125%.

The draft answers with three changes. The first is a tighter limit on what insurers spend overall.

Life insurers would need to bring expenses down to 15% of premiums within two years and 12.5% within five.

The second is a cap on commissions that varies by product and seller. Banks and brokers would get lower caps than individual agents.

On a first-time individual health policy, for example, banks and brokers could earn up to 15%, while agents could earn up to 20%. The third is customer protection.

Lenders could not force borrowers to buy insurance to get a loan, and people could see key policy details without first handing over their phone number.

Public sector lenders expect a limited hit. Canara Bank expects a yearly hit of Rs 120 crore to Rs 145 crore on life insurance distribution and under Rs 200 crore in total, set against a profit of Rs 19,000 crore last year.

Indian Bank said its bancassurance income is only around Rs 200 crore, so the effect would be small. Punjab National Bank will wait for the final rules.

Private banks are more cautious. Axis Bank expects higher volumes, a different product mix and other fee income to make up the loss.

HDFC Bank said it is too early to judge, though it earned Rs 5,688 crore from life insurance distribution in FY26.

What happens next rests with the regulator. IRDAI will review the feedback after 25 October, and the final rules could look different from this draft.

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