New Delhi, Oct. 17 -- Picture the policyholder who has paid his health insurance premium on time for years. He has done everything his adviser told him to. He planned for the future, protected his family and paid for peace of mind. Then a medical emergency arrived. Suddenly, the fine print became king. The hospital bill became a negotiation. And the customer discovered that buying insurance was the easy part. Getting its benefits was the real battle.

Now tell this policyholder that the regulator wants the insurance sector to cut expenses and commissions. His question will be simple: "Will this make my premium lower, my cover better or my claim easier to settle?"

That is the question the Insurance Regulatory and Development Authority of India needs to answer as it proposes an overhaul of insurance distribution, including tighter expense limits, commission caps and safeguards against compulsory bundling of insurance with loans. The proposals aim to curb mis-selling, improve efficiency and benefit policyholders. But they remain proposals, with consultation and implementation details yet to be worked out.

The objective is important. So is the test of whether it succeeds.

For too long, the debate around insurance has been ruled by the business of selling: how many policies can be sold, how much distributors earn, how much companies spend and how fast the sector grows. These are legitimate concerns. But insurance is no ordinary purchase. Its value remains invisible for years until illness, an accident or death turns a piece of paper into a lifeline. Throughout this journey, it is the policyholder who pays. Thus, the reforms must be viewed through the policyholder's lens.

The Cost Question

Numbers explain why the regulator is stepping in. According to calculations based on insurers' FY26 disclosures, meeting the proposed expense ceilings by FY29 could require reductions of up to 13.6 per cent for general insurers and 10.9 per cent for life insurers. The industry is seeking a phased transition, arguing that the adjustments would be substantial.

Insurers need agents, technology, branches, customer support and distribution networks. Some channels cost more to operate than others, and smaller insurers may have different cost structures from established players. A regulatory framework that ignores these differences could produce unintended consequences.

But the more important question remains: Who ultimately pays for this expensive distribution system?

Every rupee spent on commissions and administration is part of the cost of doing insurance business. That does not mean every rupee saved can be returned to customers. Premiums also reflect claims, risk, reinsurance, capital requirements and other costs. Lower commissions cannot automatically translate into cheaper premiums. Yet, customers are entitled to ask whether high distribution costs were justified and whether tighter expense limits will improve the value they receive.

The danger is that expense reduction becomes an accounting exercise. The insurer reports compliance, the distributor adjusts to a new remuneration structure and the policyholder sees little difference. That would satisfy the arithmetic without fulfilling the purpose of reform.

When Selling Rules

Commissions are about more than percentages; they are about incentives. Insurance is complicated, and customers often depend on agents, bank representatives, brokers or other intermediaries to understand policy differences. A good agent can match customers to appropriate cover and remain available when they need help. Paying for such work is entirely legitimate.

The problem arises when the incentive to sell becomes stronger than the incentive to recommend the right product. A policy that earns a higher commission may attract the seller more than one better suited to the buyer. Customers may be pushed into purchasing insurance without fully understanding exclusions, surrender conditions, waiting periods or long-term costs. This is not to suggest that every agent or insurer behaves badly. It is to recognise a structural risk in a market where the seller knows far more about the product and its economics than the buyer.

IRDAI's proposed product- and channel-specific commission limits seek to address this gap, alongside expense controls and safeguards against compulsory insurance bundling with loans. But caps alone cannot transform the relationship. If commissions fall while the quality of advice suffers, customers could lose useful guidance without gaining anything in return. If insurers redirect their efforts towards more lucrative products, incentives may change shape rather than disappear.

The test is not whether commissions come down. It is whether customers receive better advice, buy more suitable policies and understand what their premiums actually purchase.

Follow the Money

An insurer's expenses can fall without its premiums falling. Savings might boost margins, fund expansion or offset other costs. These uses are not necessarily improper; insurers must remain financially sound to pay future claims. But customers should not be expected to accept that tighter expense limits automatically translate into better value.

Nor should anyone promise that commission cuts will make insurance cheaper. Premiums depend on claims, inflation, the risks insured and product design. A health insurer facing rising hospital costs may not be able to reduce premiums simply because distribution expenses decline. The answer is not an arbitrary price cut. It is transparency and accountability.

Insurers should explain how expense reductions affect their products and customers. Where lower distribution costs create room for competitive pricing, the benefit should be visible. Where savings are absorbed by other legitimate costs, the explanation should be clear. And where premiums rise despite falling expenses, customers deserve to know why.

This matters in a country where insurance remains beyond the reach of many households, while others struggle to understand what cover they need and can afford. India needs more people to buy appropriate insurance and retain it-not growth driven by products they misunderstand or policies that fail to deliver the promised protection.

The Claims Test

Insurance has one moment of truth: the claim. Years of premiums must count for something. A cheaper policy is no bargain if the cover falls short. A leaner distribution system is no achievement if the customer must navigate a medical crisis alone. And a policy sold with a smile means little if its promise crumbles when the bill arrives.

Expense reform, therefore, must reach beyond commissions and balance sheets. Were exclusions explained before the premium was collected? Was the claim handled fairly? Could the customer challenge a rejection without being buried in paperwork or passed from desk to desk? This is where insurance earns-or forfeits-the trust on which the business depends.

The industry has a legitimate concern. Abrupt changes could disrupt distribution, affect livelihoods and make it harder for some insurers to reach customers. IRDAI chairman Ajay Seth has said the regulator would consider a smooth transition, while making clear that reform cannot be postponed indefinitely. A transition is sensible; dilution of the consumer objective is not. Nor can cost-cutting become an excuse for poorer advice or weaker service.

The final framework must balance viable distribution with protection against incentives that work against customers. Success must be measured by outcomes: Are policies better suited to buyers? Is mis-selling declining? Are claims settled fairly and promptly? When distribution costs fall, does the policyholder see an improvement in price, cover or service?

A regulator can set an expense ceiling. It cannot claim victory just because insurers stay below it. The customer has already paid. At the moment of vulnerability, he must not discover that the promise was easier to sell than to honour. IRDAI has an opportunity to make insurance work harder for those who pay for it. This is not a contest over who takes the cut. It is about what the policyholder gets in return. The premium is collected when the customer is healthy. The promise is tested when he is not. That is when insurance must prove its worth.

Published by HT Digital Content Services with permission from Millennium Post.