Buying new car? Your motor insurance dealer may earn up to 38% commission - what IRDAI's proposed fix means

The IRDAI is scrutinising high commissions earned from mandatory motor insurance policies sold through dealers. Here's what the regulator's proposed fix means for dealers and buyers.

A new car purchase often comes with the mandatory motor insurance policy arranged through the dealer or an automotive dealer-linked intermediary. While buyers are not required to purchase insurance through them, many still do so for convenience and to avoid the hassle of arranging a policy separately.

These parties receive hefty commissions on the policies they sell, putting the practice under scrutiny of the Insurance Regulatory and Development Authority of India’s (IRDAI), which has proposed changes to limit such payouts.

According to the insurance regulator's consultation paper published last week, these distributors earned almost ₹7,050 crore as commission on ₹29,000 crore of motor insurance premium in FY 2025.

“Motor insurance is a prime example of lack of transparency driving high commissions in spite of products being simple and a part of the insurance being mandatory (third-party insurance),” the consultation paper noted.

Motor insurance commissions surge; see figures

Motor insurance has emerged as one of the highest commission segments in the industry, with the average payout rate standing at 24% in FY25. The commission rate varied widely, ranging from 13% to 50%, despite a significant share of motor insurance comprising mandatory third-party cover sold at regulated tariffs.

The gap between premium growth and commission growth has also widened sharply. Between FY23 and FY25, motor insurance premiums grew by around 34% while commissions jumped nearly 259%. In the same period, the average commission rates on broker-placed motor business rose from 9% to 25%.