Life insurance in India rests on a distribution model that most economies have neither replicated nor fully understood. It is a supply-push architecture in a world of demand-pull products: an industry that does not wait for the customer to perceive a need, but sends someone personally to find him or her and highlight the need. That distinction is the structural answer to one of the oldest problems in insurance distribution.

The customer who most needs life cover at the moment is least likely to seek it. A 28-year old in good health faces no immediate apprehension about his own mortality and puts off a decision on insurance. He is operating on present bias, weighing a certain premium today against a contingency that feels remote. No product redesign resolves this.

Digital channels respond efficiently to existing demand. They have no answer for the customer who does not yet perceive a need, who is healthy, who considers mortality a problem for another decade. The agent remains the only mechanism the market has found that overcomes this inertia at scale.

Commission factor

The commission attached to that discussion is risk-pool health engineering in life insurance. It is an investment in the age and risk composition of an insured base that will pay claims across decades. The healthy 28- year old who eventually signs is in the pool because someone was paid adequately to keep going back until he said yes. His premium is lower than it would be in a risk mix composed only of people who sought cover voluntarily, because a voluntary pool fills disproportionately with people who already have reason to worry.

The front-loading of that commission reflects labour-value alignment, accurately priced. The effort is concentrated at the start: prospecting, relationship building, objection handling, closing. A healthy young person with no felt urgency requires multiple visits, each ending in polite refusal, before the conversion occurs. After the policy is issued, the work changes. Trail commissions support premium payment discipline in the lapse-prone early years and taper from the fourth year as the policy gains momentum.

Across insurers, persistency and long-term value are consistently higher in agency-sourced business than in passive channels. The commission paid in the first year is a hedge against the cost of a skewed risk pool in later years. An agent whose income also depends on renewals has every incentive to place durable business, not transient volume.

Critics of front-loaded commissions raise a concern that deserves acknowledgment: that high first-year payouts pressure agents to sell aggressively, generating policies that lapse early and leaving policyholders worse off. The concern is legitimate in any commission system poorly designed. But it misreads this one. An agent paid only in year one has reason to sell regardless of fit. An agent whose income flows across renewal years has the opposite incentive: a policy that lapses is a commission stream that ends. The structure punishes early exits and rewards durable placement. There is a further alignment that critics rarely note.

The young, healthy customer the agent is specifically incentivised to seek is also the best risk the pool can carry. Front-loading and sound risk selection point in exactly the same direction. Properly structured, the front load is not the cause of mis-selling. It is the mechanism of good selection.

Risk distribution

Insurance does not fail because risk is high. It fails when the distribution of that risk becomes skewed. Backloading commissions, a restructuring actively discussed in regulatory forums, sets off a less visible but equally damaging spiral. Income uncertainty does not just reduce agent numbers. It changes agent behaviour. Agents leave for adjacent financial services or exit the field.

Those who remain concentrate on wealthier clients whose policies will not lapse, and on customers already anxious about their health, because anxiety predicts renewal. The field force begins to behave like a demand-pull system. The young, healthy, unconvinced life is no longer being sought. The pool ages, claims rise, and the insurer under pressure looks again at commissions. The spiral tightens.

Examples of such outcomes can be found in adjacent insurance domains. Health insurance, which has operated on demand-pull from the beginning, shows where this leads. Industry data suggest senior adoption has grown 50-60 per cent annually since the pandemic.

Nearly a quarter of hospital claims now originate from the 60-plus cohort, and IRDAI was compelled in January 2025 to cap renewal premium increases at 10 per cent. The regulator treated the symptom. The underlying problem remains.

When the US introduced individual health insurance marketplaces under the Affordable Care Act, healthy young adults stayed out, premiums rose, and Washington introduced an individual mandate to compel by law what incentives should have achieved through persuasion. Once incentives fail, compulsion becomes structurally unavoidable.

Instead of tinkering with a well established mechanism that evolved over decades, a better approach would be to consider an age-band-based, calibrated top-up commission for intermediaries for insuring younger lives so the risk pool remains healthy and young. Bridging the protection gap begins with the youth. Their integration into the insurance safety net moves us toward the goal of Insurance for All by 2047. The same logic applies to health insurance. Higher commission rates for younger entry-age groups would create the incentive to acquire the lives the pool most needs, converting a demand-pull market into a supply-push one.

Financial inclusion

Any proposal to restructure commission must model what happens to pool composition in India before it reaches the Gazette. In Tier 2 and Tier 3 India, where the agent is often the only financial intermediary a family ever meets, the stakes are higher still. Dismantling the income structure of the field force in these geographies is not a regulatory adjustment. It is a withdrawal of financial access from the part of the country that can least afford it.

India’s life insurance commission structure has been shaped by six decades of operational learning across every geography and income level this country contains. That correction, when it is forced, will come either through incentives that widen the pool or through mandates that compel participation.

India’s insurance story will be written not just in boardrooms or spreadsheets, but also in the living rooms where an agent sits down, asks the uncomfortable question, and waits for a yes that may take half a dozen unwelcome visits. Break the incentive, and we break the primary bridge that takes risk to the young before risk comes to them. Preserve it, refine it, and aim it at the lives the pool needs most, and we do more than protect commissions. We protect the promise of insurance itself: affordable, broad, and there when it matters. That is how we reach Insurance for All by 2047.

Suseel Kumar is a retired Managing Director; and Sudhakar is retired Executive Director (Marketing), LIC of India. Views expressed are personal

Published on April 23, 2026