Mis-selling of insurance: A call for stricter oversight and regulation, says former IRDAI member

Nilesh Sathe, former member of the Insurance Regulatory and Development Authority of India (IRDAI), has called for strict regulatory oversight to address the issue of insurance mis-selling. His remarks come in the wake of growing concerns raised by Finance Minister Nirmala Sitharaman and IRDAI Chairman Debasish Panda, who have flagged the issue as a serious problem in the insurance sector.

The root of the issue: Commissions and lack of regulation

Sathe emphasised the need for comprehensive reform to curb mis-selling, which he believes stems from the current commission structure in bancassurance.

Historically, IRDAI had prescribed a cap on commissions, but this regulation was eventually merged into the broader expenses of management framework, which Sathe believes is flawed.

“There needs to be a ceiling on commissions,” he stressed.

The absence of a specific commission cap allows banks and distributors to pay varying commissions to agents, sometimes incentivising them to push unsuitable products to customers.

Sathe believes this is a key reason behind mis-selling and urges for a return to stricter commission regulations to address the problem.

Banca channel: Still vital, but needs streamlining

Despite his concerns, Sathe does not foresee the bancassurance (banca) channel facing significant threats.

He acknowledged that bancassurance has played a crucial role in increasing

insurance penetration in India.

“I don’t think sales through the banca channel will decline, but it needs to be streamlined,” he remarked.

He emphasised the importance of a structured approach to selling insurance, warning against situations where customers, seeking a fixed deposit, are offered a single-premium insurance policy instead.

Sathe also highlighted that many customers are unaware of their right to return policies within 30 days if they are unsatisfied, a provision introduced by IRDAI.

However, he also pointed out that not enough people are aware of this right, and banking staff may sometimes apply undue pressure on customers.

“Insurance education is required. People should not blindly follow what the branch manager or agents suggest,” he advised.

Public vs private banks: Role and responsibility

Sathe further clarified that the share of public sector banks (PSUs) in the total bancassurance market is not significant compared to private sector banks.

However, he expressed confidence that PSUs will undergo more rigorous monitoring in light of the recent discussions.

If mis-selling is reported, Sathe emphasised that branch managers and bank officials should be held accountable, citing the need for action in cases where fraudulent sales practices are observed.

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