What changed inside India's insurance regulator?

When the Insurance Regulatory and Development Authority of India (Irdai) released its consultation paper on insurance distribution last month, I did not expect to find much to comment on. Much to my surprise, the data was remarkably candid and unusually granular. I found enough material to write two columns in a fortnight.

One used Irdai's benefits data to show that insurers pay five times as much because of policy surrenders as they do to the families of deceased policyholders. The second used complaints data to show that policyholders who complain and keep escalating win more often than insurers at every stage of the process. I have written about this industry’s awful incentives for literally decades, but never expected to find vindication in data released by Irdai itself.

The media and social media have covered the commission caps proposed in the paper, but my question is different: how did such a candid document come to be?

Unusually candid

If you turn to part 2, practically every page has numbers that Irdai has never published before. Here are just a few examples: individual insurers are named by code and ranked on cost. Individual banks are shown by how many insurers they have tied up with and what each tie-up costs.

At one point, we discover that group health insurance commissions touch 93% of premiums at some insurers. In the regulator's own words, this is "unusual and counter-intuitive," since group schemes typically have lower claims and the corporate buyer should have bargaining power. Given its decades-long track record, Irdai did not write "unusual and counter-intuitive" about high costs by accident. This kind of comment shows that something has changed.

Perverse incentives

Two more interesting examples from the same document fit the same pattern. When a bank ties up with only one insurer, the average payout is 13% of new business premium. But for banks that tie up with several insurers, the average payout rises to 33% and can reach 72%.

Insurers compete within the bank for business, which can result in customers getting a worse deal rather than a better one. The bank will push whichever insurer pays it the most, not whichever policy suits the customer.

Another example is vehicle insurance. Since no vehicle can leave the showroom without insurance, this is a unique corner of the industry where the sale is only about which insurer to choose, not whether insurance has to be bought. Despite this, intermediaries get an average commission of up to 38%, and malpractices such as dealers forcing customers to choose specific insurers are common.

No one who has bought a new car in the last couple of decades is unfamiliar with this. What is new is seeing the regulator's own previously unpublished data, which proves the point.

What changed?

Most people I have spoken to say the explanation is a leadership change. Ajay Seth, a career bureaucrat who spent decades in the finance ministry and retired as Economic affairs secretary, was appointed Irdai's chairman in July 2025.

Of course, one appointment does not change an institution on its own. A broader swathe of government must finally acknowledge that this industry’s malpractices have gone too far.

While this paper makes me hopeful, it should not result in unadulterated optimism. Remember that the same government owns LIC and the dominant general insurers. This is a big conflict in the insurance regulatory process. Any real reform will cut profits and, in turn, the dividends the government gets from insurers.

That is not to say that this paper is insincere. The paper's content tells us quite the opposite. I’m saying that the real test of any treatment is not how good the diagnosis is, or what treatment can be planned, but whether the patient gets any better. Here, that means the final regulations, and whether the commission caps survive the industry's objections.

I have followed Irdai for a long time and never found much reason for hope, but for the first time, I do.

Dhirendra Kumar is founder and chief executive officer of Value Research, an independent investment advisory firm.