India’s Insurance Sector Still Depends On Agents For 80% Of Business, Raising Profitability Concerns

New Delhi, May 24: India’s insurance industry continues to rely heavily on intermediaries such as agents, brokers, bancassurance partners and OEM channels, with nearly 80 per cent of business still coming through these distribution networks.

A new report by Praxis Global Alliance has warned that rising commission-led competition may be weakening underwriting discipline and increasing long-term profitability risks for insurers.

IRDAI Raises Concerns Over High-Cost Insurance Model

The issue has gained attention after Ajay Seth highlighted concerns about the insurance sector’s structurally high operating costs and its continued dependence on intermediary-driven distribution instead of stronger digital adoption.

The report suggests that aggressive competition for market share is pushing insurers to offer higher commissions to intermediaries, particularly in retail insurance categories such as motor and health insurance.

Revised EOM Rules Intensify Commission Competition

According to the report, competition accelerated after the Insurance Regulatory and Development Authority of India revised the Expense of Management (EOM) framework in 2023.

The updated rules shifted insurers from product-level expense caps to a more flexible portfolio-level system. While the change was intended to improve operational flexibility, Praxis believes it also encouraged insurers to compete more aggressively through commissions and incentives.

The report noted that commission growth has been rising faster than premium growth across private insurers, public sector insurers and standalone health insurance companies since the rule change.

Industry executives cited in the study said some insurers are using low-cost businesses such as crop insurance and group insurance to create additional expense capacity, which is then redirected toward higher commissions in profitable retail segments.

Underwriting Losses Continue Across The Industry

Despite strong premium growth in the sector, underwriting profitability remains weak.

Praxis reported that combined ratios across Indian insurers continue to remain above 100 per cent, indicating that companies are still losing money from core underwriting operations.

The report estimated underwriting losses at nearly 13 per cent of net written premium, while investment income contributes roughly 21 per cent of net written premium. This suggests insurers remain heavily dependent on treasury gains and investment returns to maintain profitability instead of generating sustainable earnings from insurance operations alone.

According to the report, excessive commission-driven competition is weakening pricing discipline and delaying the identification of unprofitable business segments.

Intermediaries Continue To Control Customer Relationships

One of the biggest structural challenges highlighted in the report is the lack of direct customer ownership by insurers.

Intermediaries still dominate customer acquisition, policy renewals and customer engagement, meaning insurers often incur acquisition-like costs repeatedly even for renewing existing customers.

Praxis described this trend as “reacquisition-led growth,” where customers remain loyal to individual agents or intermediaries rather than the insurance brand itself.

Direct-To-Consumer Models Could Improve Profitability

The report suggested that insurers may need to strengthen direct-to-consumer (D2C) models to reduce long-term dependence on commissions and improve customer retention.

Global insurance companies such as Progressive, GEICO and Allstate were cited as examples of firms that successfully built profitable underwriting businesses through stronger direct customer engagement.

Praxis noted that Progressive increased the share of policies sourced through direct channels from 31 per cent in 2000 to 59 per cent by 2025, alongside major improvements in underwriting performance.

Indian Insurance Industry Faces A Structural Shift

The report suggests India’s insurance industry may now be entering a critical transition period where profitability will increasingly depend on digital transformation, customer ownership and underwriting discipline rather than aggressive commission-driven expansion.

While intermediaries continue to dominate the sector today, experts believe insurers that successfully build direct customer relationships could gain a major competitive advantage in the coming years.