Cost of acquisition per policy

What is cost of acquisition per policy?

Cost of acquisition per policy is the full cost an insurer or intermediary incurs to bring in one new policy. It adds up first-year commission and rewards to the distributor, the salaries and incentives of the insurer's own sales staff, marketing and lead costs, medical examinations, and the cost of issuing the policy, and divides the total by the number of policies issued in the period.

It is the number that decides whether a channel makes money. A policy that costs more to acquire than the insurer can earn from it over its life destroys value, however good the premium growth looks.

How cost of acquisition per policy is calculated

Cost of acquisition per policy = (commission and rewards on new business + sales staff costs + marketing and lead costs + medical and underwriting costs + issuance costs) ÷ new policies issued

Two related ratios are often more useful than a rupee figure:

• Acquisition cost ratio: total acquisition cost ÷ new business APE, which adjusts for ticket size.
• Cost per persisting policy: total acquisition cost ÷ policies still in force at the 13th month, which shows the real price of business that stays.

Worked example (illustrative numbers)

A direct digital channel and an agency branch each issue 1,000 policies with total APE of ₹3 crore.

The digital channel looks much cheaper per issued policy. Once lapses are counted the gap narrows, and if the agency's policies also renew for longer, it can end up the better buy.

How acquisition cost shows up in Indian disclosures

Insurers do not publish a cost-per-policy figure, but the components are visible:

• Commission. Life insurers paid ₹40,825 crore of new business commission (first year plus single premium) in 2024-25, out of total commission of ₹60,800 crore. Total commission grew 18% against premium growth of 6.73% (IRDAI Annual Report 2024-25).
• Expense ratios. Each life insurer's L-22 form shows the commission ratio and the ratio of expenses of management to gross premium.
• Business development spend. L-22 also carries business development and sales promotion expenses as a share of new business premium.

All of this sits within the limits of the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024, which since April 2024 let each insurer set commission under a board-approved policy rather than fixed product caps. In September 2026 IRDAI released a consultation paper, "Recalibrating Economics of Insurance Distribution", proposing lower overall expense limits and a return to prescribed commission caps that vary by channel and product. Comments were due by 25 October 2026, and the proposals were not final as of October 2026.

What cost of acquisition per policy means for distribution

• Commission is only part of the cost. In agency and bancassurance, insurer-side costs (sales managers placed in bank branches, training, contests, branch offices) can be as large as commission. Channel profitability reviews should include them.
• Price the whole funnel. Low conversion is the hidden driver of high acquisition cost in digital and telesales channels, where leads are paid for whether or not they convert.
• Judge cost against persistency and margin. The right comparison is acquisition cost against the value of new business a channel produces, which already allows for lapses.
• Expect pressure if the 2026 proposals go through. Tighter expense limits measured on gross direct premium would force insurers to cut acquisition cost per policy, through cheaper digital issuance, better conversion or lower distributor payouts.
• For partners: distributors that bring business with good persistency and low cancellation rates are cheaper to the insurer per persisting policy, which strengthens their hand in commission negotiations.