India’s insurance industry may be on the verge of a major structural shift. With the government proposing amendments that allow 100% foreign direct investment (FDI) in insurance companies and discussions underway around capping commissions, industry leaders, investors, and consumers are closely watching how the sector could transform.
Although the final bill is still awaiting passage and regulatory clarity, early signals suggest the changes could significantly alter how insurance products are sold, priced, and distributed across India.
Opening the Door to Global Players
The proposal to allow 100% FDI in insurance builds on earlier reforms that raised the cap from 49% to 74%. While that move did not result in a flood of foreign insurers entering India, industry leaders believe full ownership could make a crucial difference.
India remains vastly underinsured. A large segment of the population still lacks access to basic life and health insurance. Allowing complete foreign ownership could attract global insurers who previously hesitated due to limited control over operations.
International players bring:
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Global best practices
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Advanced technology platforms
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Innovative, customer-centric products
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Data-driven underwriting and pricing
These capabilities could help increase insurance penetration, especially in underserved and rural markets.
Commission Caps and the Question of Mis-selling
One of the most debated aspects of the proposed reforms is the possibility of moderating or capping commissions. Currently, in certain life insurance products, commissions can range from 30% to 50% of the first-year premium, and in some cases even higher.
This structure has long been criticized for encouraging mis-selling. Agents and distributors may prioritize high-commission products over those best suited for customers, focusing on rapid acquisition rather than long-term policy sustainability.
Industry experts argue that reducing commissions could:
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Align incentives more closely with customer interests
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Improve persistency ratios
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Reduce policy lapses
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Build long-term trust in insurance products
While distributors may face near-term pain, many believe the long-term impact will be positive for the ecosystem.
Regulatory Evolution and Industry Readiness
India’s insurance regulator, IRDAI, has already taken steps to reform the commission framework. Two years ago, it transitioned toward an Expenses of Management (EOM) model, giving insurers more flexibility while maintaining oversight.
Most insurers have already adapted to these changes, suggesting the industry is better prepared for further regulatory evolution. Any new commission framework is expected to balance the interests of insurers, distributors, and customers rather than imposing abrupt or disruptive cuts.
Banks, Bancassurance, and Revenue Impact
Banks have been among the biggest beneficiaries of high insurance commissions, especially through bancassurance partnerships. In some cases, banks earn tens of thousands of crores annually by distributing insurance products—often more than from their core lending businesses.
This has raised concerns that:
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Sales staff prioritize insurance over core banking services
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Financial planning becomes secondary to commission generation
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Customer needs may be overlooked
If commissions are reduced, banks could see a short-term revenue impact. However, larger institutions are better positioned to absorb the change due to their scale, negotiating power, and diversified income streams.
Some banks have already begun shifting toward:
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Branch-level profitability metrics
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Reduced product-specific targets
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Greater emphasis on customer lifetime value
These moves suggest the sector is slowly preparing for a lower-commission future.
Digital Platforms and Market Consolidation
Digital insurance platforms are expected to handle the transition more effectively. With lower operating costs and data-driven distribution models, online players can absorb commission reductions better than traditional agents.
Historically, when commissions fell in mutual fund distribution, larger and more efficient players emerged stronger, while smaller distributors struggled. A similar consolidation could occur in insurance.
Platforms focused on:
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Lifecycle customer value
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Cross-selling health, life, and loan products
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Technology-led servicing
are likely to remain competitive even if commissions decline.
Investment Outlook: Pain Now, Potential Later
From an investor perspective, insurance stocks have underperformed over the past two to three years. However, valuations have become more reasonable, and long-term growth prospects remain strong.
With regulatory clarity, the sector could attract:
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Sovereign wealth funds
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Long-term foreign investors
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Strategic global insurers
Life insurers with strong persistency ratios, cost efficiency, and protection-focused portfolios are particularly well-positioned.
In general insurance, companies gaining market share in retail health and motor insurance—while improving combined ratios—are also viewed positively.
Shift Toward Protection and Term Insurance
One of the most significant long-term effects of commission moderation could be a shift toward pure protection products, such as term insurance.
Term insurance:
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Offers high value to consumers
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Is simpler and more transparent
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Aligns better with financial protection goals
Insurers have already begun focusing more on protection-oriented products, with strong growth in sum assured issuance. This shift benefits consumers by reducing reliance on complex bundled or savings-linked products that often carry higher commissions and lower transparency.
What This Means for Consumers
For policyholders, these reforms could result in:
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Lower premiums over time
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Better product suitability
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Reduced mis-selling
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Greater transparency
As awareness increases and digital distribution grows, consumers may increasingly choose simpler, cheaper, and more effective insurance products—similar to the rise of direct mutual fund plans.
The Road Ahead
While there will be short-term disruption—especially for distributors and bancassurance-heavy models—the broader trajectory appears positive. Insurance is a long-term business, and reforms that prioritize customer value tend to support sustainable growth.
India’s insurance sector is not just opening up—it is evolving. If implemented thoughtfully, 100% FDI and commission reform could mark the beginning of a more transparent, competitive, and inclusive insurance market.