The ongoing conversations around the restructuring of insurance commissions have triggered a much-needed debate on the future of our industry. On one side, there is a strong push toward tightening expenses to drive down premium costs. On the other hand, there is a very real concern about how these changes will impact the vast network of intermediaries who actually take insurance to the grassroots of India.
As a sector, we need to step back and look at a fundamental truth: Insurance is not a manufacturing business.
In traditional retail, the primary cost driver is making the product – raw materials, factories, and supply chains. Once the product hits the shelf, a consumer can look at it, understand its utility, and buy it. But when you are dealing with intangible financial products, that logic flips completely.
Why “sold, not bought” isn’t just a cliche
For decades, we have heard that insurance is a product that is “sold, not bought.” In a country like India, where insurance penetration still hovers below 5%, this isn’t just marketing jargon – it is our operational reality.
Think about what actually happens when someone buys a policy. An insurance contract is packed with dense legal jargon, complex exclusions, waiting periods, and deductibles. Expecting a first time buyer in a Tier-3 town to just download an app, scroll through pages of fine print on a tiny screen, and make a perfectly informed choice all by themselves simply isn’t realistic.
This is exactly why the distribution network matters so much. Whether we are talking about a local agent down the street, a corporate broker, or a regional insurtech platform, intermediaries do the heavy lifting that an app or an algorithm just can’t match.
For one, they break down the education barrier. Advisors spend hours sitting with people, translating complicated legal clauses into simple, everyday regional language so the customer actually knows what they are buying.
Then there is the element of trust. At its core, insurance is a safety net you buy for a worst case scenario. People are naturally hesitant to hand over their hard-earned money to a faceless, distant entity. A local, human touch creates the bridge of credibility that gives a worried customer the confidence to secure their family’s future.
But perhaps most importantly, distributors act as a lifeline when things go wrong. The real value of insurance isn’t tested on the day you pay the premium; it’s tested on the day you have to file a claim. When a medical emergency hits or a business suffers a massive loss, having a local partner there to hold the customer’s hand through a stressful paperwork process is something a digital interface simply cannot replace.
Redefining distribution costs as an investment
When we look at distribution expenses strictly as a “middleman cost” that needs to be slashed, we miss the bigger picture. These expenses are actually capital investments into financial literacy and consumer protection.
Building service networks, training professional advisors, and establishing a physical or hybrid presence in underserved markets requires heavy, consistent investment. If the economic viability of these distribution networks is squeezed too tightly, the unintended consequence won’t just be consolidation – it could be a widening protection gap in the areas that need insurance the most.
We absolutely support the regulator’s vision of making insurance affordable and expanding its reach to every citizen. It is a goal our entire industry shares. But let’s be clear: real financial inclusion needs balance. Affordability shouldn’t come at the cost of accessibility and advice.
The industry is shifting, sure, but the future isn’t a race to either extreme. We aren’t going to see digital platforms completely wipe out the human element. On the flip side, traditional players can’t just ignore digital tools either. The sweet spot is a hybrid setup – using smart digital infrastructure to empower, rather than replace, the local advisors doing the heavy lifting on the ground. As we tweak the math behind commissions, we just have to be incredibly careful not to dismantle the very networks that keep customers safe when they actually need us most.
