IRDAI proposes new motor insurance rules: What could change for new car buyers

Buying motor insurance could change significantly if IRDAI's proposed distribution reforms take effect. The regulator wants customers buying a new vehicle to be given a clearer option to purchase insurance through digital platforms, while also proposing changes to the way motor dealers distribute policies and earn commissions.

The proposals come as IRDAI's data shows a sharp increase in motor insurance commissions. Motor insurance premiums grew by around 34% between FY23 and FY25, while commissions increased by around 259%, according to the regulator's consultation paper on “Reforms for Recalibrating Economics of Insurance Distribution.”

IRDAI said the average commission rate in motor insurance was around 24% in FY25, although the range varied from 13% to 50%.

OEM brokers and Motor Insurance Service Providers (MISPs) together accounted for around 30% of the motor insurance market and received an average commission of 24%, with the maximum going up to 31%.

In FY25, these distributors generated around ₹ 29,000 crore in premiums and received nearly ₹ 7,050 crore in commissions, according to the consultation paper.

The regulator has also highlighted differences in commissions across motor insurance products and distribution channels.

For new vehicles, OEM brokers received an average commission of 27%, while MISPs received around 38%. For old vehicles, MISPs received an average commission of 12%.

IRDAI has classified third-party insurance for new vehicles as a “nil-effort product”, since vehicle registration requires evidence of insurance. It has similarly described own-damage and comprehensive insurance for new vehicles as low-effort products.

IRDAI has proposed that motor insurance products for both new and old vehicles should be available on Market Infrastructure Institution (MII) platforms such as Bima Sugam.

The regulator has also proposed specific requirements for motor dealers operating as Insurance Distribution Entities (IDEs) or Points of Sales Persons (PoSPs).

For customers buying new vehicles, dealers would have to prominently display an option to purchase motor insurance through the MII platform, including a QR code through which customers can access the platform. They would also have to make new-vehicle customers aware of this option.

The proposal would therefore introduce a formal digital purchase option into the new-vehicle insurance process.

For not-for-profit platforms established by all or a group of insurers, IRDAI has proposed that the platform fee should not exceed 5% of the premium, with the fee intended to recover platform costs.

IRDAI has proposed bringing motor dealers into a more defined distribution framework.