Indian Insurance Regulator's Commission Cut Proposal Creates Uproar in the Sector, May Impact Nepal Too

Kathmandu. After the Insurance Regulatory and Development Authority of India (IRDAI) published a draft proposal for public feedback, suggesting cuts in commission rates for agents and brokers to reduce the distribution cost of insurance policies, a debate has erupted across India both for and against it.

Most professionals have voiced opposition to such a provision on their LinkedIn profiles, which they use to express analytical comments and views related to their business. They argue that cutting broker commissions will only increase the workload on sales representatives and have suggested reconsideration.

The regulator has proposed capping commissions for agents and intermediaries and controlling distribution costs. Experts, agents, and brokers in the Indian insurance sector have expressed serious concern over this decision. According to them, reducing agent commissions could directly jeopardize the basic infrastructure that extends insurance access to remote and small towns.

According to Indian insurance experts, in rural and small towns of India, insurance sales are not just sales but the first medium of financial literacy. Agents are the primary means to explain insurance to customers, help them choose the right insurance plan, and provide after-sales service. They argue that merely reducing distribution commissions does not lower the actual cost of insurance access. Rather, it could reduce agents' incentives and displace them from this profession, thereby increasing companies' fixed physical infrastructure and manpower costs.

Agents are outraged by the regulator's proposal to reduce the new commission caps to 30 percent for term insurance, 20 percent for health insurance, and zero for third-party motor. Agents argue that meeting uninformed or reluctant customers and explaining insurance plans is extremely difficult. If commissions are reduced, agents will stop reaching remote and small customers and focus only on large, affluent customers. They warn that this will undermine the Indian government's national goal of "Insurance for All by 2047".

Insurance brokers argue that all intermediaries should not be put in the same basket. A broker's main job is to represent the customer's interest and provide unbiased advice. A broker's income is not just net profit; it includes continuous service costs such as employee salaries, technology, branch operations, and claim settlement support. Basing control over the entire agent and broker system on the high commissions of a few institutional channels as exceptions risks deteriorating insurance access and quality.

Nepal's insurance sector is no different from India's. Although the Nepal Insurance Authority has recently emphasized insurance literacy, access, and digital technology, agents remain the main backbone for expanding insurance access in Nepal.

In remote and rural areas of Nepal, awareness about insurance is still very low. Agents go door-to-door to explain the importance of insurance. If commissions or incentive structures are drastically cut, Nepali agents may also become discouraged, slowing insurance access, according to insurance agent leaders. Customers still complain about claim payments.

From selling insurance plans to facilitating claim settlements, agents and brokers play a huge role. Without ensuring their income, quality service cannot be expected.

In Nepal too, regulation is necessary to stop the practice of selling insurance plans with false information and to make distribution costs transparent. However, policies brought to curb exceptional malpractices should not put the professional existence of honest agents or brokers at risk.

Insurance experts suggest that when making policies, the Nepal Insurance Authority and stakeholders should consider not only reducing company expenses but also the value of agents' sustainability, their reach to remote areas, and the continuous service customers receive.