Irdai Aims to Cut Insurance Mis-Selling

The Insurance Regulatory and Development Authority of India (Irdai) is taking steps to reduce mis-selling in the insurance industry by lowering upfront commissions, which should benefit policyholders and improve trust in insurance. According to Irdai Chairman Ajay Seth, the principal objective of the consultation paper is to enhance value to policyholders.

The consultation paper aims to expand coverage, improve affordability, enhance accessibility, and tackle compulsory bundling and reduce mis-selling. Mis-selling in the insurance industry is driven by high upfront sales commissions, which can be as high as 40% to 50% of the first-year commission on new business.

Lowering first-year commissions is expected to reduce mis-selling by removing the incentive for it and encouraging better behavior among distributors. Irdai proposes to create a public insurance registry to document and disclose poor conduct, including mis-selling, by distributors.

The issue of mis-selling is widespread, with 40% to 50% of grievances received by Irdai falling under the category of unfair business practices, which includes mis-selling. By addressing this issue, Irdai hopes to build stronger insurers and distributors aligned to policyholder expectations, ultimately improving the economics of insurance.

## Why it matters The proposed changes by Irdai are significant as they aim to improve the overall insurance industry and benefit policyholders. By reducing mis-selling and improving transparency, Irdai hopes to increase trust in insurance and expand coverage. This, in turn, will lead to increased competition among insurers, who will differentiate themselves on price, products, and service quality, ultimately benefiting policyholders.