Insurers firms paid Rs 1 lakh crore in commissions in FY25, highlighting the massive cost of selling insurance policies in India. This huge payout shows how deeply insurance companies still depend on agents, brokers, and bancassurance channels to drive growth.
The figure has sparked fresh debate across the industry. While insurance penetration is rising, high commissions are putting pressure on profits and raising concerns about long-term sustainability.
Why Insurers Firms Paid Rs 1 Lakh Crore in Commissions in FY25
The reason insurers firms paid Rs 1 lakh crore in commissions in FY25 is simple: distribution remains expensive.
India’s insurance market relies heavily on:
- Individual insurance agents
- Corporate brokers
- Bank-led bancassurance partnerships
Each of these channels earns a share of premiums sold. As premium collections grow every year, commission payouts automatically rise with them.
Life vs Non-Life: Where the Money Went
A major share of the amount insurers firms paid in commissions in FY25 came from life insurance companies. Life policies often offer higher commissions, especially on:
- Traditional savings plans
- Endowment policies
- Unit-linked insurance plans (ULIPs)
Non-life insurers, covering health, motor, and general insurance, also paid large commissions, but at relatively lower rates compared to life insurance products.
Impact on Insurance Companies’ Profits
When insurers firms paid Rs 1 lakh crore in commissions in FY25, it directly affected their bottom line.
Key impacts include:
- Lower operating margins
- Higher expense ratios
- Pressure to increase premiums
Some insurers now earn strong top-line growth but struggle to convert it into profits due to rising distribution costs.
Regulatory View on Rising Commissions
India’s insurance regulator, Insurance Regulatory and Development Authority of India, has been closely monitoring commission structures.
In recent years, the regulator has:
- Allowed more flexibility in commission payouts
- Pushed insurers to improve transparency
- Encouraged digital and direct-to-customer sales
However, the FY25 data shows that traditional commission-heavy models still dominate the market.
Digital Sales Still a Small Share
Despite rapid digitisation, online and direct insurance sales remain limited. This is another reason insurers firms paid Rs 1 lakh crore in commissions in FY25.
Challenges slowing digital adoption include:
- Low financial awareness
- Need for personal advice
- Complex policy structures
Until customers feel confident buying insurance without agents, commission costs are likely to stay high.
Is the Commission Model Sustainable?
Industry experts are divided.
Some believe high commissions are necessary to:
- Expand insurance coverage
- Reach rural and semi-urban areas
- Educate first-time buyers
Others argue that unless insurers reduce commission dependence, profitability will remain under pressure, especially as competition intensifies.
What This Means for Policyholders
When insurers firms paid Rs 1 lakh crore in commissions in FY25, part of that cost was indirectly passed on to customers.
For policyholders, this could mean:
- Higher premiums
- Lower returns on savings-linked policies
- Complex products designed to support commissions
This is why experts advise customers to compare policies carefully and understand fee structures before buying.
The Road Ahead for India’s Insurance Industry
Going forward, insurers are expected to:
- Push digital and app-based sales
- Simplify products
- Reduce reliance on high-commission plans
Still, for the near future, agent-led sales will remain critical, suggesting commission payouts will continue to be a major expense.
Conclusion
The fact that insurers firms paid Rs 1 lakh crore in commissions in FY25 clearly shows the true cost of insurance growth in India. While the industry is expanding fast, controlling distribution expenses will be key to building a more profitable and customer-friendly insurance market.
