Insurance Mis-selling Persists Despite Regulatory Oversight
Insurance mis-selling remains one of India’s most persistent challenges, surviving repeated regulatory tightening and growing scrutiny. Even as theInsurance Regulatory and Development Authority of India (IRDAI)strengthens rules around disclosures, suitability assessments, and customer consent, complaints linked to unfair sales practices rose again in FY25. This suggests the problem lies not in claims or servicing but in how insurance products are sold.
A rising share of life insurance complaints now relates to mis-selling, while overall complaint volumes remain stable. High-profile accounts, such as the documentaryMis-sold, echo the experiences of many buyers who were pushed unsuitable products, often disguised as safe investments or savings substitutes.
Experts argue that mis-selling persists becausesales incentives have not changed at the ground level. Targets, contests, and high upfront commissions continue to reward closing sales over suitability. Regulatory safeguards—like stricter norms on need analysis, benefit illustrations, and customer acknowledgements—often translate into procedural compliance rather than meaningful customer understanding.
“Process compliance has become tick-box compliance,” says Shilpa Arora, COO of Insurance Samadhan. Customers frequently share OTPs and acknowledgements without reading or understanding them, undermining regulatory intent.
Accountability is diluted across multiple layers—agents, bank branches, telecallers, and insurer operations. IRDAI reviews have flagged deficiencies in sales practices and documentation, but enforcement remains slow, and penalties are often absorbed institutionally rather than targeting individuals.
Low financial awareness further compounds the problem. Many customers rely on trust-based buying, particularly from familiar bank officials or long-standing agents. Mis-selling often occurs through aggressive pitches that obscure lock-in periods, surrender penalties, and mismatches between products and actual financial needs.
Sales targets and revenue pressure are major drivers. Banks, as dominant life insurance distributors, push insurance sales aggressively, sometimes leveraging personal data of high-net-worth clients for bancassurance partners. Many sales personnel lack adequate training, especially in complex or specialized insurance products, and enforcement is complicated by regulatory overlaps between IRDAI and the Reserve Bank of India (RBI).
While IRDAI has proposed reforms granting stronger penalty powers, enforcement remains the weakest link. Detection is slow, proof is difficult, and penalties often fail to outweigh the commercial gains of aggressive selling. Experts agree that unlesssales incentives are realigned, accountability is clearly fixed at the individual level, and enforcement becomes swift and personal, mis-selling will remain a stubborn feature of India’s insurance market.
In short, regulatory tightening alone may improve paperwork, but withoutstructural changes in sales practices, the gap between promises made and the reality faced by customers is likely to persist.
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