Insurance Regulator Alarms Industry Over Sharp Rise in Mis-Selling Complaints
India’s insurance regulator has issued a stern warning to the industry following a troubling increase in customer complaints. The Insurance Regulatory and Development Authority of India, known as Irdai, has flagged a sharp rise in grievances related to unfair business practices in the current financial year. This trend highlights a persistent problem of mis-selling that continues to undermine consumer trust in the sector.
What Constitutes Insurance Mis-Selling?
Insurance mis-selling occurs when a policy is sold to a customer under false pretenses or without proper disclosure. A common example is selling a complex investment-linked insurance plan to an elderly person seeking a simple pension product. Another is promising exaggerated returns or hiding critical policy exclusions and high charges. The result is a policyholder who is often locked into a long-term financial commitment that does not meet their needs, leading to financial loss and erosion of confidence in the system.
Irdai’s data indicates that complaints in this category have risen sharply in FY25. This surge suggests that despite previous warnings and guidelines, the fundamental issue remains unchecked. For investors, this serves as a critical reminder to exercise caution and fully understand any insurance product before purchase.
Regulator Calls for Root Cause Analysis and Stronger Controls
In response to the rising complaints, Irdai is pushing insurance companies to go beyond surface-level fixes. The regulator has urged insurers to conduct deep-rooted cause analyses to understand why these practices are flourishing. More importantly, companies must implement concrete corrective measures.
Two key areas have been highlighted for immediate action. First, insurers must enforce rigorous product suitability assessments. This means ensuring that the policy being sold is appropriate for the customer’s age, income, financial goals, and risk tolerance. Second, companies need to strengthen controls over their distribution channels. This includes better training and monitoring of agents and bancassurance partners, who are often the front line of sales.
The Persistent Challenge of Low Insurance Penetration
This crackdown on mis-selling comes against a paradoxical backdrop. Despite India’s large population and growing economy, insurance penetration in the country remains low compared to global averages. Insurance penetration measures the total insurance premium as a percentage of a country’s Gross Domestic Product (GDP). A low figure indicates a large portion of the population and economy is unprotected against financial risks.
Industry experts argue that rampant mis-selling directly contributes to this problem. When customers have a bad experience, they are not only likely to lapse the unsuitable policy but also to avoid insurance products altogether. This creates a vicious cycle where sales pressure leads to mis-selling, which in turn damages the industry’s reputation and hampers broader financial inclusion goals. For long-term sector growth, building trust is as important as selling policies.
For general investors, this development is a signal to be vigilant. It underscores the importance of dealing with reputable advisors, reading policy documents thoroughly, and asking pointed questions about commissions, surrender charges, and coverage details. As the regulator tightens its scrutiny, investors can hope for a more transparent market, but personal due diligence remains the best defense against unfair practices.
