IRDAI has proposed changes to insurance commission structures in its latest consultation paper, including revised limits on distributor remuneration and an additional allowance for business from underserved areas. The proposed changes have raised concerns over whether lower payouts could make it harder for insurers and intermediaries to economically serve customers in Tier 2, Tier 3 and rural markets.
For first-time insurance buyers in smaller towns, the issue goes beyond the price of a policy. Local advisors often help customers compare products, understand exclusions and waiting periods, complete documentation and navigate claims. If lower payouts make smaller-ticket policies less viable for distributors, it could eventually affect the availability of such assisted insurance services in markets where insurance penetration is still developing.
Why smaller-town insurance distribution could be hit harder
The effort involved in selling an insurance policy does not necessarily fall with the premium. A first-time buyer can require multiple conversations and quotes before purchasing. Similarly, a motor policy involves several steps, including documentation, issuance, renewals and endorsements.
An insurance broker, speaking on condition of anonymity, said a ₹3,000 two-wheeler policy and a ₹30,000 family floater can require broadly similar effort from a distributor.
“The effort behind a small-town sale is fixed,” the broker said.
If the commission percentage is significantly reduced, the smaller-ticket policy is therefore more likely to stop covering the cost of servicing the customer, the broker said.
The impact could be particularly relevant for smaller towns, where policy premiums are generally lower than in metros. However, the broker said customers in these markets are also upgrading their insurance coverage. According to data from the broker’s platform, health insurance premiums per policy in Tier 2 and Tier 3 cities have increased by more than 70% since 2020.
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