The Insurance Regulatory and Development Authority of India (IRDAI) has proposed a major shift in the bancassurance model, suggesting that banks move from earning commissions on insurance sales to charging market-determined transaction fees, according to a submission to the Ministry of Finance.
Under the current system, for an insurance policy with an annual premium of ₹1,000, a bank earns an 18% commission, or ₹180, while the insurer retains ₹1,000, costing the policyholder ₹1,180. The IRDAI’s new framework would eliminate commissions, with banks instead collecting a transaction fee directly from the policyholder and remitting the premium to the insurer.
Sources familiar with the proposal say the IRDAI views this as a win-win for insurers, policyholders, and banks.
The model is expected to bring several benefits:
- Multiple Insurer Partnerships: Banks would be permitted to partner with multiple insurance companies, moving away from exclusive tie-ups. This change aims to increase insurance penetration by offering customers a broader range of products.
- Market-Determined Transaction Fees: Instead of fixed commissions, banks would charge transaction fees for facilitating insurance sales. These fees would be determined by market dynamics, with no prescribed floor or ceiling, allowing for competitive pricing.
- Enhanced Consumer Choice: The new model seeks to provide consumers with more options, reducing the likelihood of mis-selling and force-selling practices. By offering a variety of insurance products, banks can better cater to the diverse needs of their customers
- Reduced Dependency on Parent Banks: Insurance companies may become less reliant on their parent banks or a single large partner, fostering a more competitive and diversified market.
The proposal was submitted under the leadership of Debasish Panda, who served as IRDAI chairman until his retirement in March 2025. Panda had repeatedly warned banks against mis-selling insurance products, stressing the need to rebuild customer trust and position insurance as a low-cost distribution channel.
This overhaul aligns with IRDAI’s broader goal of achieving “Insurance for All” by 2047, which focuses on expanding the number of insurers, diversifying product offerings, and strengthening distribution networks. The proposal, if approved, could reshape India’s bancassurance landscape, potentially increasing insurance penetration while addressing long-standing concerns about transparency and fairness in the sector.
Also Read: How insurance helps you save money and secure future
(Edited by : Poonam Behura)
