IRDAI is right: insurance should be bought, not sold to you
Commissions have grown far faster than premiums, and complaints are up sharply. The regulator's draft rules deserve support, and should be made tougher, not weaker.
Almost every Indian family has a story about insurance. The policy pushed by a bank manager when the home loan came through. The “investment plan” that turned out to return less than a fixed deposit. The health cover sold by someone who never mentioned the waiting period.
The Insurance Regulatory and Development Authority of India now has the numbers to show the problem is systemic. Between FY23 and FY25, broker commissions in general insurance rose 173% while premiums grew 37%. In motor insurance, commissions rose 259%. Complaints on the regulator’s own portal rose by three-quarters, to more than 1.37 lakh. Only 48% of life policies sold by agents are still in force after five years, against 71% of those bought online.
What the draft gets right
The consultation paper, open for comments until 25 October, would cap the total that insurers can spend on distribution, shift more commission to renewals, ban making insurance compulsory with a loan, claw back commissions on mis-sold policies and tag every policy to the person who sold it. Each of these aligns the seller’s interests with the buyer’s.
Where it should go further
- Disclosure at the point of sale. Buyers should be told, in rupees, how much the seller earns from the policy before they sign.
- A real cooling-off period. The free-look period should be easy to use, with refunds processed quickly and without questions.
- Bank accountability. Banks are among the biggest distributors. Penalties for mis-selling should fall on the bank, not just on the individual employee meeting a target.
The industry will argue that lower commissions will slow the spread of insurance in an under-insured country. That is a real concern. But policies that lapse after two years do not protect anyone. Better that fewer people buy the right cover than that many buy the wrong one.
The Rostrum View is The Daily Rostrum’s house editorial. Disagree? Send us a guest editorial.
Sources: Our report on the IRDAI draft, ThePrint.
The views expressed are the author's own and do not necessarily reflect those of The Daily Rostrum.
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