On September 23, the Insurance Regulatory and Development Authority of India (IRDAI) released a consultation paper proposing hard caps on what insurance sellers can earn. The proposal would limit commissions on pure term plans to as low as 5‑10% of the first‑year premium, a sharp reduction from the current 51% that agents receive on a ₹20,000 term policy. The market reacted immediately, with PB Fintech, the parent of Policybazaar, falling 36% on September 24 and another 4% on September 25, the only stock to hit a record high and then a record low in less than a day. The drop reflected investors’ concern that the cap would cut the earnings of distributors and reduce the incentive to sell health and motor policies. PB Fintech’s shares are now trading below their previous peak, a stark contrast to the company’s earlier performance. The consultation paper remains a draft, with comments invited until October 25 and implementation proposed from FY28.

Policybazaar’s own analyst call suggests that the company expects the value of its life‑insurance business to remain broadly similar, helped by higher renewal commissions on term plans. In the non‑life insurance business, the analyst said the value could fall to 33‑40% of the original if the proposed cuts in health and motor insurance go through. The health and motor insurance business, where renewal commissions would be capped at 5‑10%, is therefore the main area of concern for the company. The analyst also noted that the draft is still open for comments, and that the final rule could differ from the current proposal. The company’s outlook remains cautious, with the potential for a significant decline in non‑life premiums if the cap is implemented. The market will watch closely for any changes to the draft before making further investment decisions.

The past offers guidance on how commission caps have fared in India and abroad. In 2009, SEBI banned the 2.25% entry load on mutual funds, and assets grew more than elevenfold by 2026, from ₹7.5 lakh crore to ₹87.08 lakh crore. In 2010, IRDAI overhauled ULIPs, banning upfront commissions as high as 30% and spreading payouts over a five‑year lock‑in. ULIP premiums fell 67% in FY12, while traditional plans grew 32%, and by FY26 ULIPs formed 44% of HDFC Life’s individual annualised premium. These cases show that while short‑term distributor revenue may fall, long‑term product adoption can improve.

In China, the regulator told insurers in August 2023 to pay banks no more commission than the rates they had filed, cutting average commission rates by about 30%. China Life’s value of new business rose 35.7% in 2025 to ¥45.75 billion, its fastest growth since 2017, supported by a shift to participating products. In Australia, upfront life‑insurance commissions were cut from about 120% of the first‑year premium in 2018 to 60% by January 2020. Adviser numbers fell from about 28,000 in late 2018 to 15,099 in June 2026, and new life‑insurance policies issued fell from 103,000 in 2018 to 44,000 in 2023. These examples illustrate the varied outcomes of commission cuts across markets.

The table summarises the key changes and outcomes of each case: India mutual funds (2009) saw a 2.25% entry load banned and assets grew more than elevenfold by 2026; India ULIPs (2010) had upfront commissions banned and sales shifted to traditional plans; China bancassurance (2023) cut bank commissions by about 30% and insurers’ new business value rose; Australia life insurance (2018‑20) halved upfront commissions and advisers and new policies fell sharply. The common thread is that commission caps do not necessarily hurt long‑term sales; they often move the money elsewhere or shift product focus. For Policybazaar, the real test will be whether renewals in health and motor insurance still pay and whether the final rule mirrors the draft.

All said, while the going looks tough for insurance distributors right now, the new rules are more likely to be a bend in the road rather than the end of the road. The consultation paper remains open for comments until October 25, and implementation is proposed from FY28. Investors will monitor how the final rule is shaped and how it affects the earnings of distributors and the growth of health and motor insurance products. The market’s reaction to the draft highlights the sensitivity of the sector to regulatory changes, but historical precedents suggest that long‑term adoption can persist even after commission rationalisation. The outcome will ultimately depend on the final rule’s specifics and the industry’s ability to adapt to a more transparent commission structure.