India’s insurance regulator plans to mandate salesperson identification and public records of mis-selling to protect consumers.
IRDAI aims to combat insurance mis-selling through mandatory suitability assessments and stringent commission clawbacks.
India’s insurance distributors face a massive overhaul of accountability under new regulatory proposals. The Insurance Regulatory and Development Authority of India has outlined strict rules to eliminate unethical sales practices. The regulator now demands mandatory suitability assessments for all prospective policyholders. Furthermore, agents could soon face public disclosure of their individual mis-selling histories.
The consultation paper identifies poor sales tactics as a primary cause of premature policy surrenders. IRDAI wants customer suitability to become a strictly enforceable obligation. Every insurer and distribution entity must establish a comprehensive framework to analyse customer needs. Agents selling high-value life insurance must maintain a documented analytical audit trail.
Merely obtaining a customer signature will no longer absolve intermediaries from sales responsibility. When buyers choose products against analytical recommendations, distributors must clearly document the underlying reasons. The regulator explicitly condemned the common practice of misrepresenting savings products as fixed deposits. These deceptive tactics frequently occur within bank-led distribution channels.
Furthermore, the authority flagged twelve distinct forms of mis-selling that will attract severe penalties. These violations include disguising regular-premium products as single-premium investments to unsuspecting buyers. Additionally, agents cannot sell term insurance to individuals who do not have dependents or a steady income. Distributors must also explain mortality charges and capital risks clearly before selling unit-linked policies.
Banks and non-banking financial companies will also face significantly tighter sales incentive rules. Consequently, the regulator plans to reclassify all direct and indirect remuneration as formal commissions. The proposal effectively prohibits volume-linked rewards for bank employees handling insurance products. Moreover, lucrative incentives such as luxury trips often conflict with customer suitability.
Compulsory bundling of insurance with loan products will face immediate regulatory restrictions. Lenders cannot force borrowers to purchase coverage exclusively from their affiliated institutional partners. Instead, borrowers must pay their premiums separately through their own independent bank accounts. Ultimately, lenders must demonstrate a tangible benefit when offering lower interest rates alongside insurance.
To ensure absolute transparency, IRDAI intends to tag each salesperson’s identity to every specific policy. A newly proposed Public Insurance Registry will maintain these crucial performance records online. Therefore, future recruiters and prospective clients can easily review an agent’s historical conduct. This system aims to fix individual accountability while establishing a permanent market deterrent.
Furthermore, proven mis-selling incidents will trigger mandatory commission clawbacks by the parent insurer. This aggressive measure fundamentally alters the underlying economics of modern policy distribution. Distributors will immediately lose their financial remuneration if audits uncover unethical sales practices. Meanwhile, large entities must disclose their commission structures in highly accessible, highly accessible language.
Industry stakeholders currently have until late October 2026 to submit their comprehensive feedback on these reforms.
(Source: BFSI)
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