HDFC Ergo, Tata AIG Join Other Insurers In Cutting Distributor Commissions

The latest to join the bandwagon are HDFC Ergo General Insurance and Tata AIG General Insurance. Already, ICICI Lombard General Insurance, Aditya Birla Health Insurance, Niva Bupa Health, Star Health and Care Health have cut commissions to distributors. From October 1, 2025, the
commission paid to distributors is inclusive of 18 per cent GST.

A communication from HDFC Ergo General Insurance to distributors said, “With the GST exemption on premiums, Input Tax Credit (ITC) will no longer be available on commissions, administrative, operational and other common expenses. As per Government expectations, insurers must ensure that the benefit of reduced GST is passed on to the customers, thus keeping premiums affordable. In order to keep premium affordable for customers and to ensure a healthy balance for all stakeholders, we have decided to absorb the ITC disallowance impact on non-commission costs at HDFC Ergo. Accordingly, effective October 1, 2025, the commission paid to you will be inclusive of 18 per cent GST. With products now more affordable than ever, you can reach more customers, close more sales and grow your earnings through higher volumes.”

Tata AIG General in a communication to distributors said, “With the new guidelines in place, insurance companies are no longer eligible to claim ITC. This will lead to increase in costs impacting Profit and Loss and Expenses of Management of insurance companies. We have taken this up with the relevant authorities and are awaiting their response. Meanwhile, starting 1st October 2025, commission rates will be revised to align with the GST changes. We will be rolling out the update commission grids shortly.”

The government reduced the Goods and Services Tax (GST) on individual health and life insurance premiums from 18 per cent to zero effective September 22. It clarified that insurers cannot claim Input Tax Credit (ITC) on services such as brokerage and commission for individual health and life insurance affecting both profitability and operating expenses of insurers.

Prior to GST reforms 2.0, insurers used to claim ITC on services utilized which included distribution commissions, reinsurance and promotions/other operational expenses such as rent, technology and manpower. While a GST exemption has made policies cheaper for individuals, it has created pressure on insurance companies' margins, as they have lost the benefit of ITC that they could earlier claim on their expenses.