Despite years of regulatory intervention, mis-selling complaints linked to unfair business practices (UFBP) continue to rise in India’s insurance sector. Even in FY25, grievance data shows that misrepresentation, unsuitable product sales, and misleading return promises remain persistent problems.
On paper, regulations appear robust. In practice, however, the gap between compliance and consumer protection remains wide.
The Paper–Reality Gap in Insurance Selling
Regulators have focused heavily on process corrections—mandatory need analysis, benefit illustrations, recorded consent, and customer acknowledgements. However, these safeguards often fail at the ground level.
What is intended as informed consent frequently becomes:
- Another OTP shared casually
- A hurried signature without explanation
- A checkbox ticked to meet compliance timelines
The result is optical compliance, not genuine understanding.
The 2024 Process Changes: Intent vs Outcome
The 2024 circulars issued by Insurance Regulatory and Development Authority of India strengthened requirements around:
- Signed need analysis
- Customer acknowledgement of benefit illustrations
- Explicit confirmation of policy features and risks
While well-intentioned, these measures have largely translated into mechanical consent collection rather than meaningful disclosures. Customers are often told, “2–3 OTPs are required to complete the process”—without clarity on what they are agreeing to.
The Real Driver: Sales Pressure and Incentives
The core reason mis-selling persists is not lack of regulation, but misaligned incentives.
- High upfront commissions
- Monthly and quarterly targets
- Non-cash incentives such as foreign trips and rewards
- Career pressure on agents and relationship managers
When selling pressure dominates, suitability becomes secondary. Advisors are incentivised to close, not to advise.
Low Awareness and Trust-Based Buying
Insurance in India is still largely sold on trust, not comprehension. Many buyers:
- Do not read policy documents
- Rely on verbal assurances
- Assume familiarity equals competence
This environment allows mis-selling patterns to repeat year after year.
Most Common Mis-Selling Patterns Seen on Ground
Across grievance data and consumer complaints, three themes recur consistently:
- Insurance sold as an FD or guaranteed-return product
- Policies pushed as mandatory for loan approval
- Money in lapsed policy
- “Money will come back later” narratives, leading to policy lapses and financial loss
These are not isolated incidents—they are systemic.
Lack of Accountability Weakens Deterrence
Another major gap is accountability.
- Responsibility is spread across agents, branches, insurers, and intermediaries
- Individual consequences are rare
- Penalties are often delayed or insufficient to deter repeat behaviour
Without swift refunds, penalties, or public consequences, mis-selling remains a low-risk, high-reward activity.
What Needs to Change to Actually Reduce Mis-Selling
Real reform requires:
- Aligning incentives with suitability and persistency, not just sales
- Faster premium refunds when mis-selling is established
- Strong penalties for repeat offenders, including intermediaries and managers
- Replacing OTP-style consent with plain-language key fact confirmations
Until enforcement matches intent, complaints will continue to rise—regardless of how many circulars are issued.
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Frequently Asked Questions (SEO Q&A)
Because most regulatory changes focus on documentation and process, while sales incentives and pressure remain unchanged. This creates compliance on paper but not in behaviour.
OTP-based consent often becomes a formality, taken without explanation. Customers may not realise they are approving need analysis or benefit illustrations they have never read.
The most common forms include:
1. Policies sold as fixed deposits
2. Insurance made compulsory for loans
3. Misleading assurances about returns and liquidity
Regulations help in setting standards, but weak enforcement and delayed consequences limit their effectiveness at the ground level.
Customers should:
1. Ask for written explanations of returns and lock-in
2. Never share OTPs without understanding the purpose
3. Verify if a policy is truly mandatory for loans
4. Seek independent advice before purchasing
Reforming commission structures, enforcing accountability on individuals, faster grievance redressal, and simplifying disclosures into plain-language confirmations.
