₹10 crore cover at 70? Insurance reform must start with the buyer
Commission caps are necessary, but the deeper problem is suitability. Insurance benefits often emerge years later, after death, illness, or loss. Buyers cannot readily judge advice at the time of purchase. This information gap, combined with upfront commissions, sales targets, and complex savings-linked products, encourages recommendations that maximise sellers’ earnings rather than meet customers’ needs.
A few months ago, a life insurer’s sales team visited a senior-living community with brochures for unit-linked insurance plans. Most residents were in their late seventies or older. The reassuring pitch—protect yourself and your family—included examples of senior citizens purchasing cover worth several crores. Persistent calls and messages followed.
The episode captures India’s insurance distribution problem. The question is not merely whether a product is legal, its brochure complete, or the buyer’s consent documented. It is whether that product should have been sold to that buyer at all.
IrdaiI’s September 23 consultation paper, 'Recalibrating Economics of Insurance Distribution,' recognises that the current model is costly and heavily incentivized. It suggests reducing expense-of-management limits, imposing caps on product and channel commissions, tightening controls on incentives and reimbursements, and enhancing protections against mis-selling.
The diagnosis is straightforward. Irdai data show that new-business premiums from corporate agents rose 28% from FY23 to FY25, while distributor remuneration jumped 125%. Despite these increases, insurance penetration remains under 4% of GDP. Meanwhile, selling costs are rising faster than insurance revenue.
Regulation should shift focus from mere disclosure to actual outcomes. While a 75-year-old may rightfully require insurance, the appropriateness of a product should be assessed based on factors like age, dependents, liquidity, assets, liabilities, investment horizon, and coverage intent. A signature alone cannot validate an unsuitable recommendation, and a "needs analysis" should be completed before a sale is concluded.
The RBI’s June 2026 Responsible Business Conduct framework for banks emphasises that unsuitable or inappropriate sales are considered mis-selling, even if the customer gives explicit consent. It bans mandatory bundling and allows for refunds and compensation if mis-selling is established. In the financial sector, consent cannot replace the need for suitability.
The point is not to deny older people access to insurance, but to provide advice tailored to their circumstances. The burden should rest with the seller to justify the recommendation, rather than with the customer to uncover its shortcomings years later.
Reforms to curb mis-selling
Irdai’s proposals should go further in four ways. First, remuneration should follow the policy’s duration. Front-loaded incentives favour acquiring customers over serving them. A substantial share of earnings should depend on persistency, service quality, and the absence of upheld mis-selling complaints. Clawbacks must be enforceable, automatic, and large enough to change behaviour.
Second, suitability obligations must be enforceable, especially for high-value or complex products. Distributors should justify why a recommendation suits the buyer’s age, income, liquidity, risk capacity, and goals, and why simpler options are unsuitable. Enforcement should assess the recommendation’s reasonableness, not just the paperwork.
Third, unsolicited selling requires tighter controls. Unsolicited real-time sales without consumer consent should face stricter standards. Doorstep selling and persistent cold calls for long-term financial contracts should be subject to higher standards than typical retail sales.
Fourth, transparency must cover total compensation. Irdai rightly includes incentives, awards, reimbursements, selling expenses, and related payments. A commission cap achieves little if remuneration merely takes another form.
Lower commissions might reduce intermediary earnings and distribution effectiveness, particularly in rural areas outside major cities. This issue warrants attention because India requires wider coverage, and human agents play a crucial role. However, regulation alone cannot ensure distributor incomes regardless of their suitability, persistency, or customer results. Distribution efforts should be sustainable because they provide real value to policyholders, not because complexity conceals the costs.
Put policyholder outcomes first
As households increasingly invest through mutual funds and securities markets, insurance should emphasise its distinctive purpose: risk pooling and protection. Savings-linked products remain relevant where they serve customer needs, rather than the interests of distributors.
The consultation offers a chance to refocus regulation. Attempts to balance insurers’, agents’, and consumers’ interests have fallen short, with the industry subtly reclaiming consumer gains. Policyholder outcomes should be the primary measure. A transparent distribution framework is needed, one in which insurers and intermediaries are held accountable for what their products deliver, not just for completing a sale.
These outcomes are quantifiable. Following implementation, channels should monitor product persistency, early surrenders, complaints, claims processing times, commissions, and customer satisfaction. Success means fewer unsuitable policies, not a more complicated commission structure. As the consultation wraps up, the key test for the final rules is whether distribution economics yield to the economics of protection. Until that happens, the leaflets and calls will continue.
CKG Nair is the former director of the National Institute of Securities Markets, and V. Shunmugam is a partner at MCQube.