IRDAI (Insurance Brokers) Regulations 2018: How Your Broker Must Disclose Commissions and Act in Your Interest

When you buy a term plan or a family floater through an "advisor", you are often dealing with a licensed insurance broker — and the rulebook that governs how that broker must treat you is the IRDAI (Insurance Brokers) Regulations, 2018 (reference F.NO. IRDA/REG/2/149/2018). Unlike an agent, who represents the insurer, a broker is legally meant to represent you, the buyer. This deep dive explains what the 2018 framework forces your broker to disclose, how their commission is funded, and the specific clauses you can quote when a recommendation feels less about your needs and more about theirs.

The distinction matters in rupee terms. A broker can place your policy with any of the dozens of IRDAI-registered insurers, while a tied agent can only sell one company's products. That wider choice is only valuable if the broker discloses conflicts honestly — which is exactly what the 2018 code of conduct requires.

The Rule / Product

The IRDAI (Insurance Brokers) Regulations, 2018 replaced the earlier 2013 regulations and consolidated the licensing, capital, conduct and disclosure regime for brokers. The regulations recognise three categories of broker, each with a different minimum capital requirement and a permitted scope of business:

The deposit shown above is set at 20% of the minimum capital and must be kept in a fixed deposit with a scheduled bank, with a lien marked in favour of IRDAI, so a defaulting broker cannot simply walk away with client money. A direct broker therefore locks up Rs 15 lakh that you, as a retail buyer, never see but which underwrites their accountability.

Beyond capital, the 2018 regulations impose a "fit and proper" test on the applicant and require every broking firm to appoint a qualified principal officer who carries personal responsibility for the firm's conduct. The firm and its key personnel must clear IRDAI's character and competence checks before the certificate of registration is granted, and the regulations cap aggregate foreign holding in a broking company at the FDI ceiling notified for the sector. These entry barriers exist so that the entity advising you on a Rs 1 crore cover is itself solvent, accountable and identifiable.

Two structural protections in the 2018 regulations changed the game for consumers. First, the certificate of registration is now valid until it is suspended or cancelled — the old three-year renewal cycle of the 2013 regime was scrapped, which means a broker's licence status is continuous and easier to verify on the IRDAI portal. Second, every broker must maintain a professional indemnity (PI) insurance cover with a limit of indemnity of at least three times the remuneration received in the preceding financial year. That PI cover is the pool a wronged client claims against if mis-selling causes a loss.

Why It Matters

The single most important consumer fact in the 2018 regulations is who pays the broker. Under Regulation 30, a broker's remuneration is paid by the insurer, not by you, and is funded out of the premium the insurer already charges. So the Rs 18,000 you pay for a Rs 1 crore term plan is the same Rs 18,000 whether you buy it direct from the insurer's website or through a broker — the brokerage is carved out of that amount by the insurer, not added on top.

That funding model creates the central conflict the regulations exist to police: because higher-premium or higher-commission products pay the broker more, the rules force the broker to put your interest first regardless. The code of conduct (Schedule I to the regulations) requires a broker to gather your needs through a documented proposal form process, recommend products suited to those needs, and disclose the commission or remuneration earned on a product when you ask for it. You have a statutory right to that number before you sign.

The 2018 code also makes the broker your representative after the sale, not just at the point of purchase. The duties include assisting you at claim stage and acting in your interest in any dispute with the insurer — which is why a Rs 5,400 brokerage on a term plan is meant to buy ongoing service, not a one-time sale. If a broker collects the commission in year one and then disappears at claim time, that is a conduct breach you can escalate to IRDAI's grievance machinery.

Rebating — the practice of a broker or agent passing back part of their commission to lure you into buying — is separately and explicitly banned by Section 41 of the Insurance Act, 1938. Since the 2015 amendment, a contravention attracts a penalty of up to Rs 10 lakh. If a broker offers to "adjust" their commission against your first premium, both of you are technically on the wrong side of a 1938 statute that still carries teeth in 2026.

These conduct duties dovetail with your other protections: the 15-day free-look period on life policies lets you exit a mis-sold contract, and the broker's underwriting recommendations must match what you actually disclosed. Before you compare quotes, model your own number first with the term insurance premium calculator so you can spot a recommendation that is priced for the broker rather than for you.

Worked Numbers

Consider Priya, 32, buying a Rs 1 crore term plan with a Rs 18,000 annual premium, and separately a Rs 10 lakh family floater health policy with a Rs 22,000 annual premium, both placed through a direct broker. The commission percentages below are illustrative brokerage rates used to show the mechanics — the actual ceiling is governed by the IRDAI (Payment of Commission) Regulations, 2023, which moved from fixed product-wise caps to an overall board-approved Expenses of Management limit per insurer.

The decisive column is the last one: Priya pays Rs 40,000 either way. The Rs 8,700 of brokerage is funded by the two insurers out of that Rs 40,000, not charged to Priya on top. Under the 2018 code of conduct, if Priya emails her broker and asks "what commission do you earn on this term plan?", the broker must disclose the figure — here, Rs 5,400 in year one on the illustrative rate.

Now flip it to renewal year three. Suppose the illustrative renewal brokerage on the term plan falls to 5% of the Rs 18,000 premium, or Rs 900, while the health floater pays a level 15%, or Rs 3,300. The broker's combined renewal income drops from Rs 8,700 in year one to roughly Rs 4,200 — a useful reminder that first-year commission is front-loaded, and a broker who only ever pushes fresh policies rather than servicing existing ones is following the money, not your interest.

This is also why "buying direct is always cheaper" is a myth for regulated brokers: the premium is filed with IRDAI and is identical across the broker and direct channel for the same product. What you are paying the broker for is advice, claims support and the ability to compare insurers — value that only exists if the broker honours the disclosure duty. Run both your life and health numbers through the health insurance premium calculator and, if a unit-linked plan is on the table, the ULIP vs mutual fund calculator, so the brokerage you are effectively funding is buying you a genuinely suitable product.

Pitfalls

The 2018 regulations give you rights, but the traps below are where consumers still lose money because the protection sits in fine print rather than in the sales pitch.

• Assuming "broker" and "agent" are the same. An agent is appointed by, and represents, a single insurer; a broker is registered under the 2018 regulations to represent you across many insurers. If your "advisor" can only show you one company's products, they are an agent and the broker code of conduct does not bind them in the same way.
• Not asking for the commission in writing. The disclosure duty under Schedule I is triggered on request. If you never ask, the broker is not obliged to volunteer the number unprompted for every product, so always email the question and keep the reply.
• Falling for a rebate. A broker who offers to refund part of the premium is breaching Section 41 of the Insurance Act, 1938, exposing you to the same penalty of up to Rs 10 lakh. A rebate today often signals a broker chasing volume over suitability.
• Ignoring the product-level traps the broker should flag. A suitable recommendation must surface the policy-wording landmines: a sub-limit that caps a specific treatment, a room rent capping clause that proportionately cuts your whole claim, a co-payment you pay on every bill, and the pre-existing disease waiting period. A broker bound by the 2018 code who does not flag these in writing is not doing the job the regulations define.
• Skipping the licence check. Because registration is now continuous until cancelled, a broker's status is verifiable on the IRDAI register at any time. Placing business with an unregistered intermediary forfeits the PI-cover and deposit protections entirely.

FAQ

Does my insurance broker cost me extra compared with buying direct?

No. Under Regulation 30 of the IRDAI (Insurance Brokers) Regulations, 2018, the broker's remuneration is paid by the insurer out of the premium you already pay, not added on top. For the same filed product, the premium is identical across the direct and broker channels — in our worked example, Priya pays Rs 40,000 either way.

Can I demand to know how much commission my broker earns?

Yes. The code of conduct in Schedule I to the 2018 regulations requires the broker to disclose the commission or remuneration earned on a product when you ask. Put the request in writing and retain the reply; for Priya's Rs 18,000 term plan the year-one figure on the illustrative 30% rate was Rs 5,400.

What is the difference between a broker and an agent?

An agent represents one insurer and can sell only that company's products. A broker is registered under the 2018 regulations to represent the client and can place business with any IRDAI-registered insurer, subject to the minimum capital — Rs 75 lakh for a direct broker, Rs 4 crore for a reinsurance broker and Rs 5 crore for a composite broker.

Is it legal for a broker to give me cash back from their commission?

No. Rebating is prohibited by Section 41 of the Insurance Act, 1938, and since the 2015 amendment a breach can attract a penalty of up to Rs 10 lakh. A broker offering to refund part of your premium is acting unlawfully and usually prioritising sales volume over a suitable recommendation.

What protection do I have if a broker mis-sells me a policy?

Every broker must carry professional indemnity insurance with a limit of at least three times their preceding year's remuneration, plus a statutory deposit of 20% of minimum capital — Rs 15 lakh for a direct broker — held under lien to IRDAI. These pools back a claim if mis-selling causes you a loss, alongside the 15-day free-look exit on life policies.

How do I confirm my broker is genuinely registered?

Under the 2018 regulations the certificate of registration is valid until suspended or cancelled, so a live status is always verifiable on the IRDAI register. Check the broker's name and registration number before paying any premium; an unregistered intermediary carries none of the deposit or PI-cover safeguards.

Which calculator should I use before meeting a broker?

Model your own cover first. Use the term insurance premium calculator for life cover, the health insurance premium calculator for a floater, and the ULIP vs mutual fund calculator if an investment-linked plan is pitched, so you can judge a recommendation against an independent number.