Proposed Irdai norms need a longer glide path, say life insurance leaders

Business Standard BFSI Insight Summit: Life insurance industry leaders called for phased transition to proposed distribution reforms, saying insurers need time to adjust costs while expanding coverage

Life insurance companies have called for a longer transition period to implement the proposed distribution reforms, saying the changes could lower costs and improve customer outcomes but need to account for differences in insurers’ scale, business models and distribution networks. Speaking at the Business Standard BFSI Insight Summit 2026 in Mumbai, industry executives backed the broad objectives of the Insurance Regulatory and Development Authority of India’s (Irdai’s) consultation paper. Still, they sought changes to the proposed timelines and commission structures.

 

The proposed norms seek to address rising distribution payouts, costs and concerns around policy persistency. During the session titled Life Insurance: Distribution reforms, the new paradigm, moderated by Business Standard’s Manojit Saha, Aditya Birla Sun Life Insurance MD & CEO Kamlesh Rao said, “The question is not about where the regulation wants us to go. The question is whether what is being recommended is the destination or the starting point.”

 

 

He said gradual reduction in insurers’ expenses, including distribution payouts, would help companies maintain growth while improving value for customers. “The debate is about how long we should take to get there. Whether it is three, five or seven years, as long as we get there and we are in motion, the objective can be met,” he said.

 

The consultation paper proposes reducing life insurers’ expenses of management to 15 per cent within two years and 12.5 per cent within five years. The private life insurance sector’s expense ratio stood at 20.2 per cent in FY26, according to Irdai data. The proposed implementation date is April 1, 2027. According to the industry leaders, the proposed expense limits could require a sharp adjustment to their business models. The concern is that cutting expenses too quickly could affect their ability to invest in distribution, expand their reach and grow premiums.

 

Kotak Life MD Mahesh Balasubramanian said the focus should be on ensuring an orderly transition rather than negotiating individual numbers. “Any reform means change, and change will come with its positives and transitionary pain,” he said, adding that insurers needed time to understand the immediate business impact while working towards better customer outcomes.

 

IndiaFirst Life Insurance MD & CEO Rushabh Gandhi suggested a longer glide path for the proposed cost limits. He also called for a review of commissions across product categories. He said commissions on deferred annuity products could be increased modestly to support pension business, while the proposed commission structure for unit-linked insurance plans (ULIPs) could be difficult to implement within existing reduction-in-yield constraints.

 

“Pension as a product line is extremely critical for the health of the country as a whole,” Gandhi said, pointing to the need to support retirement savings in a country without widespread social security.

 

Alok Rungta, managing director and chief executive officer of Generali Central Life Insurance, said the reforms were a broader reset of how the industry operates, rather than merely changes to distribution rules.

 

“Anything which is good for the customer is always good for the industry,” he said, adding that the regulator would need to account for the different starting points of insurers when determining implementation timelines.

 

Rungta also stressed the importance of patient capital, given the time and investment required to establish distribution networks, particularly in smaller towns and less-served markets. 

 

Mis-selling and distribution channels

 

Gandhi said grievances and mis-selling had been somewhat overemphasised, arguing that insurers had strengthened their checks and balances over the years. These include suitability checks, pre-issuance validation calls, video-based consent and the use of data analytics to screen agents and detect potential fraud, he said.

 

Balasubramanian said complaints and policy discontinuation needed to be viewed in the context of life insurance being a long-term savings product. Customers could reconsider their financial commitments after a few years without necessarily having been missold a policy, he said. He added that both insurers and distributors were responsible for reducing mis-selling.

 

Rao cited an industry claim settlement ratio of 97.6 per cent and said insurers had paid six to eight times the claims they had expected during the Covid-19 pandemic without requiring a government or regulatory bailout. He also pointed to the 30-day free-look period, during which policyholders can return a policy if they decide it does not meet their needs.

 

Rungta said the regulator should ensure that reforms did not disproportionately weaken the traditional agency channel, which requires substantial investment in branches, people and training. Bank-led distribution has helped insurers expand their reach, but different distribution models need to coexist, he said.

 

Credit-life cover under scrutiny

 

Talking about the proposed restrictions relating to credit-life insurance, which provides cover against outstanding loans in the event of a borrower’s death, Gandhi said credit-life was an important component of expanding insurance coverage, particularly for borrowers who might otherwise leave their families with substantial debt. He cited the scale of group credit-life coverage as evidence of its reach.

 

Rao said credit-life was among the largest sources of policy volumes after the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). While he acknowledged that commission levels could need adjustment, he said the product remained important for borrowers and the broader financial system.

 

Rungta said insurers needed to prevent instances of forced bundling but cautioned against overlooking the protection provided by credit-life policies.

 

“If a person taking a loan is taking a risk, our industry’s job is to provide risk cover,” he said, adding that such protection could help families avoid a debt burden if a borrower died.

 

The executives said the broader opportunity for life insurance remained significant, with more affordable products, improved distribution and greater awareness expected to support expansion. Balasubramanian said the industry was approaching a phase in which insurance products could become more affordable, and penetration could accelerate. According to them, currently, the challenge is to implement the proposed reforms in a way that improves customer value without weakening the distribution capacity needed to extend insurance coverage across the country.