The Insurance Regulatory and Development Authority of India (IRDAI) is gearing up for a significant overhaul of the insurance sector in response to increasing complaints regarding unfair sales practices. A discussion paper outlining proposed distribution reforms is expected to be released soon.
IRDAI Chairman Ajay Seth emphasized that the upcoming reforms will prioritize addressing structural inefficiencies in pricing and distribution rather than merely focusing on liberalization. The authority is collaborating with the Reserve Bank of India to enhance oversight of banks involved in selling insurance products, aiming for a more transparent and cost-effective model.
Key Focus Areas:
- Combatting mis-selling through bancassurance channels.
- Implementing wide-ranging distribution reforms.
- Aligning cost structures with the nature and complexity of insurance products.
In the fiscal year 2024-25, the insurance sector generated ₹11.93 trillion in premium income and managed assets totaling approximately ₹74.4 trillion. Life insurers accounted for ₹8.86 trillion, representing 74% of the total premium income.
Complaints related to unfair business practices, including mis-selling, increased from 23,335 in FY24 to 26,667 in FY25, constituting over 10% of all grievances reported via IRDAI’s Bima Bharosa platform.
Understanding Mis-selling
Mis-selling refers to the practice of selling insurance products without adequately disclosing their terms and suitability. Finance Minister Nirmala Sitharaman has previously cautioned banks against such practices, urging them to concentrate on their core operations.
Seth highlighted that IRDAI's strategy is centered on enhancing transparency and ensuring compliance with regulations while facilitating economic activities and improving corporate governance.
Despite recent challenges in the sector, including tax changes and policy adjustments, Seth noted that these developments have generally favored the industry. He pointed out the positive impact of the GST exemption on retail life and health insurance policies, which is set to take effect in September 2025.
Insurance Coverage Trends:
While insurance density has shown improvement, insurance penetration has stagnated at 3.7%. The sector's high distribution costs are limiting its ability to expand its reach, despite having a robust financial foundation.
The Economic Survey for 2025-26 highlighted the need for the insurance sector to shift from a high-cost model to one that promotes affordability and broader inclusion.
Seth acknowledged that the current surrender value stipulation has not achieved its intended outcomes, indicating a need for further adjustments to address the sector's high-cost structure.
