In its latest Financial Stability Report (FSR), the RBI has flagged higher insurance commissions as a key risk, warning that elevated distribution expenses are being embedded into product pricing, thereby affecting both affordability and insurance penetration.
The central bank’s observations add to a growing chorus of concern from policymakers. The issue was first highlighted by the Insurance Regulatory and Development Authority of India (IRDAI), which cautioned that high commissions could undermine the twin objectives of deeper penetration and affordability. Subsequently, the finance ministry, through the Department of Financial Services (DFS) secretary, also red-flagged excessive commissions and spoke about the need for measures to rein them in.
According to the RBI, commission expenses for both private life and non-life insurers have seen a significant increase. The rise has been particularly sharp in the private life insurance segment, where commission payouts have accelerated notably since FY23.
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The central bank noted that higher commissions translate into higher distribution costs, which are ultimately passed on to consumers through premiums. This, the RBI said, reduces affordability and acts as a barrier to wider adoption of insurance products.
The RBI’s warning assumes greater significance in the context of IRDAI’s long-term objective of “Insurance for All by 2047.” With both the finance ministry and the central bank now echoing similar concerns, policymakers appear aligned on the view that unchecked commission structures could hinder progress toward universal insurance coverage.