LIC Expects Limited Impact from IRDAI’s Proposed Commission Cuts, Cites Lower Expense Ratio

Life Insurance Corporation of India (LIC) expects the Insurance Regulatory and Development Authority of India’s (IRDAI) proposed commission reforms to have a limited impact on its business, citing its relatively low distribution expenses and controlled expense ratio. The insurer believes its existing cost structure gives it an advantage as the regulator considers changes to insurance commissions and distribution costs.

The proposed reforms aim to reduce the cost of selling insurance policies, improve affordability for customers and address concerns around mis-selling. LIC Managing Director and CEO R Doraiswamy has indicated that the corporation is already operating within several of the proposed limits, although some products and premium-payment categories may require changes.

LIC is also preparing for changes in its bancassurance business as the proposed strategic sale of IDBI Bank progresses. The insurer says it is strengthening relationships with other banks and diversifying its distribution network to reduce dependence on individual partners.

Key Highlights

• LIC expects a relatively limited impact from IRDAI’s proposed commission and distribution reforms.
• The insurer says its existing commission expenses and overall distribution costs are comparatively low.
• IRDAI has proposed tighter commission limits and a phased reduction in insurers’ expenses of management.
• LIC may need to modify or refile certain products if the proposed rules are finalised in their current form.
• The insurer is expanding partnerships with other banks as the proposed IDBI Bank stake sale moves forward.

Why LIC Expects Limited Impact from Proposed Commission Cuts

LIC believes its existing cost structure will help it manage the proposed regulatory changes. The corporation has maintained internal limits on commissions and distribution expenses, which it says already place it within several of the benchmarks being considered by IRDAI.

According to LIC CEO R Doraiswamy, the insurer has not spent excessively on distribution compared with some competitors. As a result, it expects the impact of the proposed changes to be lower than that faced by insurers with higher distribution expenses.

Doraiswamy has also indicated that some product categories and premium-payment terms under regular-premium plans may need adjustments. If the final regulations require changes, LIC could withdraw, modify or refile certain products.

The insurer has submitted its feedback to the regulator and is waiting for the final framework before assessing the full business impact.

What Has IRDAI Proposed for Insurance Commissions?

IRDAI released a consultation paper in September 2026 proposing a broad overhaul of insurance distribution economics. The proposals seek to reduce distribution costs and make insurance products more affordable while improving transparency and customer protection.

One of the key proposals is to introduce tighter, product-specific and distribution-channel-specific commission limits. Instead of treating all insurance products and distributors alike, the proposed framework would consider factors such as the type of policy, premium-payment term, complexity of the product and effort required to sell and service it.

The regulator has also proposed reducing the expenses of management (EoM) limits for insurers through a phased approach.

Proposed Expense Limits for Life Insurers

Under the consultation paper, life insurers would be required to bring their company-level EoM ratio down to 15% of gross direct premium income within two years and 12.5% within five years.

For insurers already below the proposed benchmark in FY25, the regulator has suggested a longer-term target of 10% within five years.

These are proposed changes and should not be treated as final regulations. The framework remains subject to the regulatory consultation and finalisation process.

How Could the New Rules Affect Insurance Companies?

The proposed commission reforms could affect insurers differently depending on their distribution models and existing cost structures.

Companies that rely heavily on high-cost distribution channels may face greater pressure to reduce commissions and other expenses. Insurers with lower distribution costs could have more flexibility to adjust to the new framework.

For LIC, the potential impact is expected to be more limited because of its existing expense structure. However, the company may still need to review certain products and commission arrangements to ensure compliance with the final rules.

The proposed changes could also influence how insurance companies recruit agents, compensate intermediaries and distribute different categories of policies.

Will Lower Commissions Make Insurance Policies More Affordable?

One of IRDAI’s objectives is to reduce the overall cost of insurance distribution. Lower commission expenses could give insurers more room to improve product pricing or pass some of the savings on to policyholders.

Insurance commissions form part of the broader cost of acquiring and servicing customers. When these expenses are high, they can affect the economics of insurance products and the value customers receive from their premiums.

However, lower commissions do not automatically guarantee cheaper policies. Final premiums also depend on factors such as insurance coverage, policy benefits, risk assessment, operating expenses and the insurer’s product structure.

The proposed reforms are therefore intended to improve the overall economics of insurance rather than simply reduce the commission paid to agents.

LIC’s Distribution Network Remains a Key Strength

LIC has a large agency-led distribution network, which remains an important part of its business model. The company also sells policies through banks, corporate agents, brokers and other distribution partners.

Its strategy is to strengthen multiple channels rather than depend on a single source of business. This approach could help the insurer manage regulatory changes and shifts in the way customers purchase insurance products.

LIC has also been working to improve agent productivity and the quality of business. Maintaining a strong relationship with its agents will remain important as the company adapts to changes in commission structures.

Any reduction in agent compensation could influence recruitment, retention and sales incentives. LIC has therefore indicated that it wants the interests of its agents to be considered as the regulatory framework evolves.

IDBI Bank Stake Sale: How LIC Plans to Manage the Impact

Alongside the proposed commission reforms, LIC is preparing for changes in its relationship with IDBI Bank. The government and LIC have been moving forward with a proposed strategic divestment of their combined stake in the lender.

IDBI Bank has historically been an important bancassurance partner for LIC, helping the insurer distribute policies through the bank’s customer network. However, LIC says its dependence on the lender has declined over time.

According to company executives, IDBI Bank now contributes around 20% of LIC’s total bank-driven business and approximately 30% of its bancassurance volume. These figures indicate that the lender remains an important partner, although its contribution has moderated from earlier levels.

LIC does not expect the proposed stake sale to cause a significant decline in its bancassurance business. The insurer is expanding partnerships with other public and private sector banks to maintain distribution volumes.

Why LIC Is Diversifying Its Distribution Channels

Distribution diversification is becoming increasingly important for life insurers as regulatory changes reshape the economics of selling policies.

Relying heavily on one bank or distribution partner can expose an insurer to business disruptions if ownership, commercial arrangements or regulatory conditions change. A wider network can help reduce this concentration risk.

For LIC, strengthening relationships with multiple banks and expanding alternative channels could help maintain access to customers even as its association with IDBI Bank changes.

The strategy also supports the insurer’s broader effort to adapt to changing customer preferences, including the growing role of digital platforms and other non-traditional distribution channels.

What Investors and Policyholders Should Watch

The final form of IRDAI’s commission and expense proposals will be important for LIC and the wider insurance industry. Investors will be watching how the regulator balances lower distribution costs with the need to maintain a sustainable network of agents and intermediaries.

For LIC, key factors will include whether the final rules require changes to its existing products, how commission structures evolve and whether the company can maintain its distribution strength without significantly increasing expenses.

Policyholders will be interested in whether lower distribution costs translate into more affordable premiums, better product value and improved transparency. The actual outcome will depend on how insurers implement the final regulations.

Conclusion

LIC expects IRDAI’s proposed commission reforms to have a limited impact on its business because of its relatively low distribution expenses and controlled expense ratio. While some products may require changes under the final framework, the insurer believes its existing cost structure gives it an advantage over companies with higher distribution costs.

At the same time, LIC is preparing for the proposed IDBI Bank stake sale by expanding relationships with other Banking partners and diversifying its distribution network. The final regulatory rules and the insurer’s ability to adapt its products and distribution channels will determine how effectively it manages the changes ahead.