The enhanced regulatory powers flow from changes cleared under the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, which explicitly authorise Irdai to decide how commissions paid to agents and intermediaries are structured, capped and disclosed to policyholders. The move is aimed at improving transparency in insurance sales and reducing incentives that drive unsuitable product pushing.
At the core of the overhaul is Clause 36 of the Bill, which amends Section 40 of the Insurance Act, 1938, by inserting a new sub-section.
This provision allows the regulator, “in the interest of policyholders”, to prescribe limits on commissions or remuneration, lay down the manner in which such payments are made, and mandate how they are disclosed to customers. The amendment opens the way for rules that could require insurers and distributors to clearly spell out the commission component embedded in a policy.
The Bill also tightens conflict-of-interest safeguards, particularly in bancassurance, where banks act as major distributors of insurance products. Clause 25 replaces Section 32A of the Insurance Act and explicitly prohibits any director or officer of an insurer from holding a similar position in a banking or investment company. The intent is to prevent board-level overlap that could influence banks to favour insurance products linked to a particular insurer.
For other distribution channels — including insurance brokers, corporate agents and web aggregators — the restrictions will be enforced through regulations rather than a blanket statutory ban. Amendments to Section 42D empower Irdai to set eligibility and fit-and-proper norms for intermediaries and to suspend or cancel registrations in case of regulatory violations.
A newly inserted Section 40(2A) further gives the regulator broad authority to frame rules governing agents and intermediaries, including on conflict-of-interest issues.Collectively, the amendments strengthen Irdai’s ability to rein in mis-selling by making commission structures more transparent and by creating clearer separation between insurers and their distribution partners.
The changes also come amid mounting concern at the top levels of government and the central bank, with finance minister Nirmala Sitharaman and Reserve Bank of India governor Sanjay Malhotra recently flagging the widespread mis-selling of insurance products by banks as a serious issue.
(With inputs from ToI)
