Proposed reforms to insurance distribution regulations in India could impose direct financial penalties on distributors through commission claw-backs while establishing strict individual accountability for sold policies, according to a report by Kotak Institutional Equities.
The draft framework, unveiled in a consultation paper issued by the Insurance Regulatory and Development Authority of India (IRDAI), seeks to mandate documented needs and suitability assessments for life insurance products sold above a specified ticket size. Crucially, obtaining customer consent will no longer shield sellers or distributors from liability if a policy is subsequently determined to be unsuitable for the buyer’s financial profile.
Under the regulatory changes, verified instances of mis-selling will trigger a mandatory claw-back of commissions earned on the transaction. Every insurance policy will be digitally tagged to the functional identity of the individual agent or salesperson responsible for the transaction. Furthermore, recorded infractions could be published in the public domain as part of the seller’s permanent compliance and performance record.
To provide regulatory clarity, the IRDAI paper outlines 12 explicit scenarios that constitute mis-selling. These include marketing non-participating insurance products as substitutes for fixed bank deposits, pitching high-risk Unit-Linked Insurance Plans (ULIPs) to risk-averse or retired individuals, selling regular-premium policies to clients without verifiable steady incomes, and misrepresenting life insurance as an inheritance planning tool.
These reforms address growing structural concerns over escalating distribution costs and aggressive sales incentives across the financial sector. Data compiled by Kotak Institutional Equities highlights a widening disparity between premium growth and distributor remuneration. Among sampled corporate life insurance agents, new business premiums expanded 1.3 times from Rs 630 billion in FY2023 to Rs 800 billion in FY2025. During the same period, total distributor remuneration surged 2.3 times, rising from Rs 96 billion to Rs 216 billion.
To curb conflicts of interest, the regulatory framework proposes a total ban on volume-based and reward-linked incentives for bank and non-banking financial company (NBFC) personnel selling insurance products, covering both monetary bonuses and non-cash perks. Additionally, premium payments must originate directly from the policyholder’s personal bank account to the insurer, barring third-party payments unless processed via the Bima-ASBA system.
The regulations also target consumer-facing digital platforms, prohibiting deceptive interface designs known as dark patterns. Insurers will be required to display product features, pricing structures, and historical claims settlement statistics transparently without demanding personal contact information upfront. Major distribution entities must publish their commission structures online, with explicit commission disclosures mandated for high-value policies featuring coverage exceeding Rs 500 million. The consultation paper also proposes reintroducing statutory commission caps across life, health, and motor insurance segments.
