Commission Caps Are Gone: How IRDAI's 2024 Expenses-of-Management Rules Quietly Reshaped What Insurers Can Pay Agents

On 15 May 2024, the Insurance Regulatory and Development Authority of India (IRDAI) issued one of the least-noticed but most structurally significant documents in recent insurance regulation: the Master Circular on Expenses of Management, including Commission, of Insurers, 2024, carrying reference number IRDAI/F&I/CIR/79/5/2024. It came into force from the date of issuance and applies to every life, general and health insurer operating in India.

For more than two decades, the amount an insurer could pay an agent or broker on a given product was hard-capped by regulation. A specific term plan, a specific motor cover, a specific endowment policy — each carried its own ceiling on first-year and renewal commission. The 2024 framework deletes that product-by-product rulebook and replaces it with a single overall Expenses of Management (EoM) envelope policed at the company level. This article explains the statutory basis under the Insurance Act 1938 and the IRDA Act 1999, what the change means for you as a policyholder, and the wording traps that survive untouched no matter how distribution costs are now allocated.

The Rule / Product

The Master Circular of 15 May 2024 does not stand alone. It operationalises Regulation 23 of the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024, which were notified on 23 January 2024 and took effect on 1 April 2024. The regulations and the circular together draw their authority from section 34 of the Insurance Act 1938 (the section that lets the Authority issue directions to insurers) and section 14 of the Insurance Regulatory and Development Authority Act, 1999 (which empowers IRDAI to regulate, promote and ensure orderly growth of the insurance business).

The central change is conceptual. Under the regime that ran until 31 March 2024, commission was governed product-class by product-class. The 2024 framework folds commission into a wider category called Expenses of Management — the total of commission plus operating expenses such as salaries, rent, technology and marketing — and asks each insurer to keep that total within an overall limit linked to its premium. Crucially, the regulator no longer dictates a fixed commission figure for an individual product. Instead, under the 2024 rules an insurer must adopt a board-approved policy on commission and a board-approved EoM/business plan, both of which require certification by the insurer's statutory auditor.

This is a shift from rule-based micro-control to principle-based accountability. The number that matters is no longer a single percentage printed in a regulation; it is the total expense load an insurer carries, measured against its premium and signed off by its board and auditor. The official text is published by IRDAI at irdai.gov.in, and the enabling statutes are available on the Government of India's India Code repository for the Insurance Act 1938.

Why It Matters

If you have ever wondered why a 30-year term plan and a 30-year endowment plan can be sold by the same agent yet attract wildly different sales pressure, the answer has always partly been commission. By moving to an overall EoM limit from 1 April 2024, the regulator changed where the discipline sits — from the product to the balance sheet — but it did not abolish the discipline. An insurer that blows past its EoM ceiling faces regulatory consequences regardless of how generously it paid any single agent.

For policyholders, three consequences flow from the 2024 design. First, flexibility cuts both ways. An insurer can now pay a higher commission on a product it wants to push, provided the company-wide EoM stays within limit; this raises the importance of asking why a particular policy is being recommended to you. Second, board accountability is now explicit: because the commission policy and the EoM plan are board-approved and auditor-certified under the 15 May 2024 circular, mis-allocation is a governance failure, not merely a sales-desk decision. Third, transparency in your own costs still depends on the product disclosures, not the EoM rules — the EoM framework governs the insurer's aggregate spend, not the line-item charges on your specific policy.

The practical takeaway is that distribution-cost reform does not change the arithmetic of your own cover. Whether you are pricing a pure protection plan on our term insurance premium calculator or comparing an investment-linked policy using the ULIP vs mutual fund calculator, the premium you pay and the benefit you receive are defined by the product, not by how the insurer splits its expense envelope internally. Understanding the insurer's expense ratio helps you read the bigger picture, but it will not tell you the commission baked into your specific contract.

Worked Numbers

Because the 2024 framework controls a total rather than a per-product figure, the most useful way to understand it is to model the envelope. The numbers below are illustrative only — they use round, hypothetical inputs to show the mechanics of an overall EoM limit, not actual regulatory percentages, which are set per segment and per insurer's board-approved plan.

Imagine a hypothetical general insurer that writes Rs 1,000 crore of premium in a financial year and whose board-approved EoM plan permits an overall expense envelope of, say, Rs 300 crore for that book (a figure chosen purely for illustration). Under the old product-wise system, commission on each line of business was capped separately, so the insurer's choices were constrained at the product level. Under the 2024 envelope, the insurer can allocate that Rs 300 crore across commission and operating expenses as its board decides, subject only to staying within the total.

Both allocations sit within the same Rs 300 crore envelope, yet Allocation A directs a third of the spend to commission while Allocation B directs less than a third. Under the pre-April 2024 regime, neither column was possible to design freely, because each product carried its own commission cap. From 1 April 2024, the board chooses the split — and the statutory auditor certifies that the total respects the EoM limit. This is exactly the freedom, and the responsibility, that the 15 May 2024 circular introduced.

What this means for your premium is more subtle. Suppose you buy a term plan with an annual premium of Rs 18,000. None of the figures above tells you how much of that Rs 18,000 is commission, because commission is now managed at the portfolio level. If you want to control acquisition cost directly, buying a comparable plan through a direct or online channel typically removes intermediary commission from the equation altogether — a structural saving you can size for yourself on the term insurance premium calculator before you commit to a 20 or 30-year contract.

Pitfalls

The single biggest misreading of the 2024 EoM reform is to assume it improves your policy. It does not. The circular of 15 May 2024 governs how insurers spend money on distribution and administration; it leaves the wording of your contract — and the clauses that decide whether a claim is paid — exactly where they were. The traps below are the ones that actually determine your outcome at claim time, and none of them is touched by the EoM framework.

• Room-rent caps. Many health policies still tie eligible expenses to a daily room-rent limit, often 1% or 2% of the sum insured per day. Breach the cap and the insurer can proportionately scale down the entire bill. Read the room-rent capping clause before you assume a Rs 5 lakh cover pays a Rs 5 lakh hospital bill in full.
• Co-payment. A co-payment clause makes you bear a fixed percentage of every admissible claim, commonly 10% or 20%, regardless of the EoM reform. On a Rs 4 lakh claim, a 20% co-pay leaves Rs 80,000 with you.
• Pre-existing disease (PED) waiting periods. Conditions you already had when the policy began are typically excluded for a defined waiting period — frequently 24, 36 or 48 months from the policy start date. Non-disclosure here remains the most common reason for rejection.
• Sub-limits. A sub-limit caps payouts for specific treatments — cataract, knee replacement, maternity — below the headline sum insured. The 2024 commission reform does nothing to remove them.
• Surrender value on savings products. If you buy an investment-linked or endowment policy partly because an agent is keen to sell it, check the surrender value schedule. Early exit from a long-dated policy can return far less than the premiums paid, and the EoM rules do not change those guaranteed-surrender mechanics.

The connecting thread is that distribution economics and policy economics are now governed separately. The 2024 EoM framework, in force since 15 May 2024, makes insurers accountable for what they spend acquiring you; the product wording — underwritten under the insurer's own underwriting standards — still decides what you get back.

FAQ

Does the 2024 EoM circular mean my premium will fall?

Not automatically. The Master Circular dated 15 May 2024 (Ref IRDAI/F&I/CIR/79/5/2024) controls the insurer's overall Expenses of Management, not the price of any individual product. Premiums are set by product pricing and your own risk profile. Lower distribution costs can support competitive pricing over time, but the circular does not mandate any premium reduction.

Were commission caps really abolished?

Product-wise statutory commission caps were replaced, effective 1 April 2024, by an overall EoM limit framework under the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024, notified on 23 January 2024. Commission is now managed within the company-wide EoM ceiling under a board-approved commission policy, rather than capped product by product.

What legal authority does the circular rely on?

The framework rests on section 34 of the Insurance Act 1938 and section 14 of the Insurance Regulatory and Development Authority Act, 1999, operationalised through Regulation 23 of the 2024 Regulations. Both statutes are published on the Government of India's India Code repository, and the circular itself is hosted at irdai.gov.in.

Who signs off on an insurer's expense allocation now?

Under the 15 May 2024 circular, each insurer must maintain a board-approved policy on commission and a board-approved EoM/business plan, and these are subject to certification by the insurer's statutory auditor. Accountability sits with the board, not the sales desk.

Does the reform affect how much commission is disclosed to me?

The EoM framework, effective 1 April 2024, governs the insurer's aggregate spend. The commission embedded in your specific policy is governed by product disclosure rules, not the EoM circular. To avoid intermediary commission entirely, compare direct or online purchase, which you can model on the health insurance premium calculator.

Has anything changed for motor or travel cover?

The 2024 Regulations apply to general insurers, which write motor and travel business, so the same overall EoM discipline applies from 1 April 2024. The cover terms themselves are unchanged; you can still price a two-wheeler policy on the two-wheeler premium calculator and a trip policy on the travel insurance calculator.

Should I change how I buy insurance because of this?

The most reliable way to control acquisition cost remains the channel you choose. Because commission is now allocated at the portfolio level rather than capped per product since 1 April 2024, asking your intermediary to justify a recommendation — and comparing the same cover through a direct channel — is more important than ever.