Less Cost, More Choices: Decoding New Motor Insurance Plan For Vehicle Owners

IRDAI New Motor Insurance Rules 2026: Buying a new car could soon mean making one more important choice before driving it out of the showroom: where to buy the insurance.

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed major changes to the way motor insurance is sold for new vehicles. The proposals could reduce the commissions earned by dealers and other distributors, while giving buyers a more visible option to purchase insurance through digital platforms such as Bima Sugam.

The regulator has also proposed that customers should not lose access to cashless repairs simply because they bought their motor insurance somewhere else.

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The changes are part of IRDAI's consultation paper on "Recalibrating the Economics of Insurance Distribution". It is important to mention that they are proposals for now and could change before the final framework is notified. 

What Could Change When You Buy A New Car?

One of the biggest changes could be the way insurance is offered at the time of buying a new vehicle. IRDAI has proposed that motor insurance products be made available through Market Infrastructure Institution platforms such as Bima Sugam.

For a customer buying a new vehicle, the dealer would have to prominently display the option to buy insurance through such a platform. This could include a QR code giving the customer direct access to the digital platform.

So, buyers could get a more visible alternative instead of relying only on the insurance options offered at the dealership.

Dealers Could See Their Insurance Earnings Fall

IRDAI has proposed capping remuneration for new-vehicle motor insurance at nil for third-party premium and 5 per cent for own-damage and related covers. It has also proposed bringing technology, awareness and related spending within the commission ceiling.

According to Shailaja Lall, Partner at Shardul Amarchand Mangaldas & Co., the proposals could have a direct impact on automobile dealers, OEM-linked brokers, insurers and other motor insurance distributors.

"By reducing upfront earnings from new-vehicle policies and tightening dealer-linked arrangements, the proposals could further compress distribution margins," Lall told NDTV.

She added that smaller dealers that do not qualify as Insurance Distribution Entities (IDEs) may have to operate as points of sale or through other permitted arrangements. "The impact of these changes on the availability of a choice of products and seamless customer service needs to be examined carefully," Lall said.

Motor Insurance Sales Model Could Change

IRDAI is also proposing to replace the existing Motor Insurance Service Provider (MISP) framework with a broader Insurance Distribution Entity regime.

Under the proposed system, dealers meeting the requirements would need to register as IDEs if they want to sell insurance. Dealers that do not qualify could have to operate as a Point of Sales Person of an IDE or associate with a single insurer. 

The regulator has also proposed restrictions on arrangements between dealers, automobile manufacturers and insurance distribution entities where such arrangements could go against policyholder interests.

This could affect the traditional dealership model, where buying a car, arranging finance and purchasing insurance often happen at the same place. Lall said the reforms "could therefore change the traditional dealer-led model in which insurance sales, vehicle financing and after-sales servicing are closely linked."

Bought Insurance Elsewhere? Cashless Repair Cannot Be Denied

IRDAI has proposed that dealers should not deny cashless repair to a customer simply because the customer purchased motor insurance from another distributor. That means a buyer could potentially choose insurance elsewhere without losing access to the dealer's cashless repair facility, subject to the final rules and the terms of the insurance policy.

Lall said the proposals seek to separate insurance sales from other dealer relationships. "Dealers would not be permitted to deny cashless repair merely because a customer purchased insurance elsewhere," she said.

Why Is IRDAI Proposing These Changes?

IRDAI's consultation paper points to a sharp rise in motor insurance commissions.

According to the regulator, motor insurance premiums grew by around 34 per cent between FY23 and FY25, while commissions increased by around 259 per cent. The average commission rate in motor insurance was around 24 per cent in FY25, although rates varied across products and distribution channels.

For new vehicles, IRDAI has proposed treating mandatory third-party insurance as a "nil-effort product" because insurance is required for vehicle registration. It has similarly classified own-damage and comprehensive insurance for new vehicles as low-effort products. 

The regulator's proposed commission structure is aimed at changing how these products are distributed.

What Does This Mean For Car Buyers?

For consumers, the biggest change could be choice. A buyer could have a clearer digital route to compare and purchase motor insurance rather than treating the dealership's insurance offering as the default option.

Debashish Banerjee, Partner, Deloitte India, said the proposal represents "a significant structural intervention aimed at addressing the high cost of acquiring motor insurance customers." According to him, the proposal of nil commission for distribution entities on mandatory third-party cover for new vehicles signals IRDAI's intended direction. "As awareness and digital adoption increase, dependence on distributor-led selling may gradually reduce," he said.

However, the transition may not be simple for dealers and other distributors. "Motor insurance distribution has been a meaningful source of income for automobile dealers, OEM brokers and NBFCs for over a decade, and lower payouts may require existing commercial arrangements to be revisited," Banerjee added.

More Digital Insurance Buying Ahead?

The proposals could push motor insurance further towards direct-to-consumer and digital channels.

Banerjee said the changes could encourage alternative distribution models, including direct-to-consumer channels and platforms such as Bima Sugam. "While distribution income may face pressure, the changes could improve transparency and provide customers with greater choice," he said.

Lall also pointed to a possible shift in how distributors make money. Revenue pressures could encourage greater emphasis on renewals, servicing, technology and other permissible value-added services.

But the final impact will depend on what IRDAI ultimately adopts. "The key will be ensuring the final framework is practical, measurable and enforceable," Banerjee said.