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India’s beingness security manufacture paid ₹60,799 crore successful commissions successful FY2025. By itself, the fig is not bonzer for a assemblage of this scale. What should alarm regulators and policymakers is the trend. In a azygous year, committee payouts surged 18% portion premium maturation managed lone 6.7%. Distribution costs are present rising astir 3 times faster than the concern they are meant to support. The Reserve Bank of India (RBI) has expressed interest astir this divergence successful its Financial Stability Report (December 2025).
Public insurers amusement amended outgo discipline, portion respective backstage insurers — particularly aft 2022-23 — grounds steeper committee escalation. For policyholders, this divergence is not theoretical. Over the beingness of a emblematic policy, it translates into tens of thousands of rupees of foregone worth — not due to the fact that of fraud oregon misconduct, but due to the fact that of however bargaining powerfulness is concentrated crossed definite organisation channels.
Public and backstage security divergence
FY2025 information uncover thing much cardinal than header outgo ostentation — an vulnerability of a structural bifurcation. The Life Insurance Corporation of India (LIC), which sources astir 95% of its concern done its bureau force, saw its committee ratio diminution from 5.45% to 5.17% contempt humble premium maturation of 2.8%. In contrast, insurers heavy babelike connected alternate channels — bancassurance, brokers, security selling firms — saw committee ratios emergence sharply from 7.21% to 8.95%, a 174-basis-point leap successful a azygous year. Commission expenditure by backstage insurers surged 38.8%, from ₹25,564 crore to ₹35,491 crore.
The LIC and a fewer listed backstage insurers grounds amended outgo control, portion others amusement steep increases, pulling up private-sector averages. This 202-basis-point divergence betwixt nationalist and backstage beingness insurers — operating nether identical regulations, selling akin products, and competing for the aforesaid customers — tin mostly beryllium explained by 2 variables: transmission creation and the stock of single-premium versus non-single-premium business. Insurers with an agency-dominated exemplary show outgo discipline; those reliant connected alternate channels amusement outgo escalation. This is not correlation — it is structural causation.
The mentation lies successful bargaining power. Twenty-six beingness insurers vie for partnerships with banks controlling implicit 4,00,000 branches. Banks tin reallocate business, power insurer partners, oregon set support abstraction with comparative ease. Insurers look precocious switching costs: gathering alternate organisation astatine standard requires years and important capital. The result is predictable — pricing powerfulness concentrates with organisation intermediaries, and committee ostentation follows.
Markets respond to incentives, not intent. Historically, the Insurance Regulatory and Development Authority of India (IRDAI) imposed product-wise committee caps, limiting payouts careless of channel. When hard caps existed, competitory unit surfaced done selling arrangements, exertion fees, grooming programmes and infrastructure support. Many of these are legitimate. Concern arises erstwhile standard and timing reflector income volumes alternatively than services delivered. This is not a compliance failure; it is the earthy result of contention interacting with concentrated organisation power.
Unchanged economics
The displacement successful 2023-24 to the Expenses of Management (EOM) model was well-intentioned. It aimed to promote managerial autonomy, ratio and accountability. However, expenses earlier embedded elsewhere person present surfaced transparently arsenic commissions. Institutions with bargaining powerfulness person go much assertive successful demanding higher payouts. Visibility has improved, but underlying economics stay unchanged.
Therefore, blaming idiosyncratic agents misses the constituent entirely. After sourcing costs, taxes, overrides and organization deductions, agents clasp possibly 35%-40% of header commissions. The bulk — astir ₹26,000 crore successful FY2025 — accrues to firm intermediaries, peculiarly banks and security selling firms, which bid lawsuit entree astatine scale. This is simply a market-structure issue, not an agent-conduct issue.
Several fashionable remedies neglect to code this reality. Clawbacks marque intermediary currency flows uncertain, encouraging hazard aversion and exit from security distribution, yet harming penetration. Commission disclosure offers constricted payment to astir buyers portion incentivising informal rebates that propulsion transactions extracurricular regulatory visibility. Open architecture, often positioned arsenic pro-competition, risks worsening outcomes by eroding insurers’ incentives to put successful cause capableness and work — mirroring the communal money industry’s post-2012 experience.
Distribution economics cannot beryllium corrected done disclosure oregon accounting reclassification alone. The contented runs deeper successful inducement plan and bargaining power.
A mode out
What would assistance is rebalancing commissions distant from utmost front-loading toward meaningful renewal income, truthful that servicing and persistency substance arsenic overmuch arsenic sales. Bancassurance requires explicit associated oversight by the RBI and IRDAI, focusing connected persistency, complaints, servicing prime and commissions — not conscionable header disbursal ratios. EOM limits indispensable recognise transmission economics portion ensuring that acquisition costs stay wrong tenable bounds. Above all, regularisation should pivot toward outcomes — retention, work restitution and claims acquisition alternatively than process compliance.
Insurance penetration has already softened, declining from 4% to 3.7% of GDP successful FY2024. If organisation costs proceed to emergence faster than worth delivered, security volition steadily suffer relevance for middle-income households.
Containing acquisition costs wrong rational limits is not optional. It is indispensable for sustainable penetration, a interest rightly flagged by the RBI.
T.C. Suseel Kumar is simply a erstwhile Managing Director of the Life Insurance Corporation of India. R. Sudhakar is simply a erstwhile Executive Director – Marketing of the Life Insurance Corporation of India
