New Delhi, September 26: Sweeping regulatory changes proposed by India’s insurance watchdog could soon impose direct financial penalties on agents and intermediaries engaging in mis-selling, according to a recent report by Kotak Institutional Equities.
The Insurance Regulatory and Development Authority of India (IRDAI) has outlined a robust framework through a consultation paper aimed at curbing deceptive sales practices, enhancing market transparency, and holding distributors strictly accountable. Under the proposed guidelines, any proven instance of mis-selling will trigger an immediate claw-back of commissions earned on the policy. Furthermore, every insurance policy will be digitally tagged to the functional identity of the specific individual who closed the sale, and repeated violations could permanently taint their professional performance records in the public domain.
Brokerage firm Kotak highlighted that the framework makes documented needs and suitability analyses mandatory for life insurance sales exceeding a specified ticket size. Crucially, a customer’s signature or consent will no longer absolve sellers of liability if a policy is later deemed completely unsuitable for the buyer’s financial standing.
To eliminate ambiguity, the consultation paper details twelve distinct illustrations of prohibited sales practices. These target common predatory tactics, such as substituting bank deposits with riskier non-participating insurance products, pushing unit-linked insurance plans onto risk-averse or elderly customers, and pitching regular-premium policies to individuals lacking a steady, reliable income.
The regulatory crackdown also addresses soaring distribution expenses and aggressive sales incentives within financial institutions. Between the 2023 and 2025 financial years, corporate agency payouts surged disproportionately compared to new business premiums. To counter this, the framework seeks to outlaw volume-linked and reward-driven perks—both monetary and non-monetary—for bank and non-banking financial company personnel who peddle insurance products.
Additional consumer-centric measures mandate that premium payments transfer directly from a policyholder’s bank account to the insurer, effectively barring third-party payments outside of approved channels like Bima-ASBA. Insurers and major distributors will also be required to publish their commission policies online, while mandatory commission disclosures will apply to high-value policies exceeding 500 million rupees. Moreover, the rules aim to ban deceptive digital design practices, known as dark patterns, ensuring that everyday citizens can access clear details regarding product pricing, features, and historical claim performance without surrendering their personal contact information upfront.