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Introduction
A recent analysis of IRDAI filings and corporate disclosures reveals that some Indian
banks are earning as much as 100%
of their insurance commissions from the sale of products issued by related-party insurers.
This trend has sparked major debate over conflicts
of interest, mis-selling
risks, and potential regulatory gaps. The revelations come in
2025 amid a backdrop of growing scrutiny in bancassurance practices across
India.
In particular, the disclosures suggest that
banks, acting as distributors, may be favoring their own group’s insurance arms
over independent products—even where alternatives may better suit customers.
The magnitude of such related-party commissions has drawn reactions from
industry watchers, consumer bodies, and regulators alike.
Background / Context
What are related-party insurance commissions?
·
Related
party refers to entities that are connected by ownership,
control, shared directors, or group affiliation (per Companies Act / accounting
standards).
·
In insurance distribution, a bank as corporate agent
may sell policies of multiple insurers. If one of those insurers is in the same
corporate group as the bank (or has shared interests), then commissions earned
by the bank on those policies are related-party
commissions.
·
Such commissions can introduce incentive bias—banks may
favour internal products over external ones, even when those external products
might better match a customer’s needs.
Regulatory framework in India
·
The IRDAI
(Payment of Commission) Regulations, 2023 govern commission
payments to agents and intermediaries, and place obligations on insurers,
intermediaries, and disclosure norms.
·
Insurers must adopt a board-approved policy for
commission/remuneration.
·
The IRDAI also issues a Master Circular on Expenses of Management,
covering how commission and other distribution costs are to be managed and
disclosed.
·
Earlier regulations (such as the 2016 “Reward
Regulations”) similarly mandated that intermediaries’ payments be transparent
and subject to oversight.
·
Separately, corporate agent registration rules (2015
Regulations) require banks acting as corporate agents to
disclose remuneration from insurers under both old and new contracts.
·
In the past, the Insurance Act, 1938 placed
ceilings on commission in certain segments (e.g. general insurance).
Why this matters
·
The rise of bancassurance (banks distributing
insurance) has made banks powerful channels of insurance sales. A biased
incentive structure may shift recommendations toward affiliated products.
·
Such practices can compromise consumer choice, product suitability, and fair competition.
·
Regulatory bodies have been considering
reforms—such as capping commissions, moving from commission to fee models, or
mandating disclosure of commission in policy documents.
·
Historically, mis-selling allegations (e.g. “no
policy, no loan” practices) have drawn judicial attention and consumer
activism.
·
Given India’s low insurance penetration and
reliance on bancassurance, the integrity of distribution channels is critical
for trust in the financial sector.
Detailed Explanation of the News
What the IRDAI & disclosures show
·
A recent study (reported by 1 Finance) claims
that up to 100% of insurance
commissions earned by some banks are from related-party insurers.
·
For example, a bank might distribute insurance
only from its own group’s life insurance company—and collect all commissions
from that group insurer.
·
This is not limited to life insurance: mutual
fund commissions (from AMCs related to banks) show similarly high internal
proportions.
·
The disclosures typically come from corporate
annual reports and bank commission disclosure statements. For instance, Axis
Bank’s commission disclosure elaborates on its tie-ups and remuneration/bonus
mechanisms.
What is being challenged / debated
·
Critics argue that such a distribution structure
embeds conflicted incentives—banks
are financially motivated to push their own products, which might not be
optimal for customers.
·
Questions are being raised whether customers are
sufficiently informed about commission
structures and how much the bank retains vs. what is passed to
the insurer.
·
There is growing pressure on IRDAI to limit commission amounts,
mandate disclosure at
point of sale, or move to fee-based distribution
(similar to mutual funds).
·
Some insurers and brokers resist full commission
disclosure in policy documents, citing concerns that customers may demand a
share of the agent’s income—potentially violating anti-rebate regulations.
·
The IRDAI is reportedly considering a Total Expense Ratio (TER)
style cap (akin to mutual funds) to rein in distribution costs.
Key regulatory provisions & proposals
·
Under IRDAI
(Payment of Commission) Regulations, 2023, insurers must file
audit reports, including board comments, to IRDAI, and intermediaries must
submit their audit reports to insurers.
·
The Master
Circular on Expenses of Management (2024) tightens scrutiny
over how commissions and other distribution expenses are monitored and
disclosed.
·
Proposed amendments:
o Cap
commission on first-year premiums at 20% (for certain life insurance products),
renewal commission at 10%.
o For
general insurance and health products, commissions are currently capped (e.g.
15%) and may be rationalised further.
o Discussion
of restricting the number of insurer tie-ups a bank can have to reduce
excessive internal bias.
o Shift
from commission models to transaction
or service fee models in bancassurance.
Illustrative data (from public reports)
·
In FY24, the top 15 Indian banks earned ₹21,773 crore in
commissions from insurance, mutual funds, and associated products.
·
Some banks reportedly earned 100% of life insurance
commissions from their own life insurer arm.
·
Mutual fund commissions also follow a similar
pattern—for example, nearly 99.1% of a bank’s MF commissions coming from its related
AMC.
Impact Analysis
Who benefits, who loses
|
Stakeholder |
Likely Gains |
Likely Risks / Losses |
|
Banks / Distributors |
Higher and more predictable commission income, easier
coordination with affiliated insurer |
Reputational backlash, regulatory penalties |
|
Related-party Insurers / AMCs |
Steady distribution channel, reduced reliance on external agents |
Regulatory scrutiny, pressure to reduce margins |
|
Consumers / Policyholders |
Potential ease of bundled offerings (if transparent) |
Risk of mis-selling, suboptimal product recommendations |
|
Independent insurers / AMCs / brokers |
May gain if reforms open up distribution |
Loss of shelf space, unequal playing field |
|
Regulators / Government |
Ability to impose stricter controls, restore consumer
trust |
Implementation challenges, resistance from incumbents |
Practical implications
For businesses (banks / insurers)
·
Must revisit distribution policies and
commission structures,
ensuring compliance with board-approved policies and disclosing related-party
payments.
·
Need to strengthen internal controls and audit trails
for commissions, especially for related-party sales.
·
May see margin compression if commission caps or
TER-style frameworks are enforced.
·
May have to diversify distribution beyond
internal channels to mitigate reputational risks.
For taxpayers / consumers
·
Increased transparency could help buyers make
more informed choices, knowing which commission is retained by the bank vs.
insurer.
·
Reduced mis-selling would help protect
policyholders from suboptimal long-term commitments.
·
However, if commission incomes fall sharply,
banks may reduce bancassurance push, possibly limiting access to insurance in
remote markets.
For auditors / chartered accountants /
financial controllers
·
Must pay closer attention to Related Party Transaction (RPT)
disclosures in financial statements, particularly commission income and
distribution margins.
·
Need to validate arm’s-length nature and
fair pricing of related-party commission arrangements.
·
Ensure that commission disclosures, in notes to
accounts, comply with accounting standards (e.g. Ind AS / Indian GAAP) and
statutory regulations.
·
Be alert to regulatory non-compliance risk
and advise clients accordingly, including restatements or additional
disclosures.
Common Misunderstandings
·
“100%
related-party commission means fraud.”
Many cases arise purely from exclusive tie-ups; while the incentives are
problematic, not all are illegal.
·
“Commission
caps will eliminate mis-selling.”
Caps help, but without behavioral incentives and disclosure discipline,
mis-selling can persist.
·
“Only
life insurance is affected.”
Related-party commissions are reported in both life and general insurance (and
also mutual funds in the banking/AMC context).
·
“Customers
already know commissions.”
In most cases, retail customers are not shown commission breakdowns;
transparency is limited.
·
“Independent
insurers will disappear.”
If reforms level the distribution playing field, independent insurers may gain
shelf space and fairer competition.
Expert Commentary
“Banks distributing their own group products
must walk a tightrope between profitability and fiduciary duty,” says Dr. Sharad Menon, a
former insurance regulator and consultant. “If commission structures are left
unchecked, the entire credibility of bancassurance could suffer. The IRDAI must
champion disclosure and well-designed caps before public trust erodes
irreparably.”
In my view, the current state underscores
how distribution incentives
are as critical as capital or underwriting in insurance business models.
Without aligning incentives with customer interest, regulatory reforms will
just tweak margins—not protect consumers.
Conclusion & Action Steps
The disclosure that banks are securing up to
100% of their insurance commissions from related parties is a red flag calling
for immediate regulatory, corporate, and audit action. The risk isn’t just
theoretical: it affects consumer trust, product suitability, and competitive
fairness in the financial sector.
Key expectations and upcoming trends
include:
·
IRDAI
moving ahead with commission caps or a TER-style framework to
restrain distribution costs.
·
Mandated
commission disclosure in policy documentation, enabling
consumer scrutiny.
·
A potential shift toward transaction or fee-based
distribution models in bancassurance.
·
Banks and insurers proactively reworking distribution policies and internal
governance to minimize conflicts.
·
Auditors placing greater emphasis on verifying arm’s-length treatment of
related-party commissions.
If you are a consumer or a financial
professional, here are steps you can take now:
1.
Check
your policy documents for commission disclosure. Ask your bank
or insurer how much commission is being retained by the distributor.
2.
Compare
alternatives—ask whether a third-party insurer offers better
value than the one you are being steered toward.
3.
Audit
clients and financial controllers must insist on RPT
disclosures and validate commission-sharing between insurer and bank.
4.
Engage
with regulators or consumer forums if your bank imposes tie-in
mandates (e.g. “no policy = no loan”).
5.
Monitor
regulatory developments such as notifications from IRDAI on
commission norms, disclosure mandates, or structural reforms.
In short, this issue is not just about
commission percentages—it’s about the integrity of financial intermediation in
India. Unless stakeholders act swiftly, the risk is that bancassurance may be
seen less as a convenience for customers and more as a captive sales
machine—undermining trust in the banking and insurance ecosystem.
FAQs
Q1:
How can a bank earn 100% commission from its related insurer?
A bank may have an exclusive agency agreement with its affiliated insurance
company. If it distributes only that company’s products (and no others), all
commissions received naturally qualify as related-party commissions.
Q2:
Are such arrangements illegal under current law?
Not inherently. What matters is transparency, board oversight, and compliance
with IRDAI regulations and disclosure norms. The issue is potential conflict
and mis-selling, not automatic illegality.
Q3:
Will IRDAI force banks to change commission structures?
Potentially yes. IRDAI has floated proposals for TER-style cost caps, mandatory
disclosure, and even moving to transaction fees.
Q4:
What should customers do?
Ask for commission breakdowns and consider whether alternative insurers provide
better deals. Be wary of pressure tactics like “must buy policy to get loan.”
Q5:
How should auditors approach related-party commission disclosures?
Ensure compliance with accounting standards and regulatory rules. Validate that
transactions are arm’s-length, cross-check board approvals, and flag any
unusual commission ratios during audit review.
References
/ Source Links
·
IRDAI (Payment of Commission) Regulations, 2023
·
IRDAI Master Circular on Expenses of Management,
2024
·
Axis Bank commission disclosure
·
Insurance Act, 1938 commission ceilings
·
Banking commission data (1 Finance, Moneylife)
·
IRDAI proposals on TER / commission reforms