₹10 crore cover at 70? Insurance reform must start with the buyer

Summary

Insurance regulation must go beyond capping commissions to enforce product suitability, hold distributors accountable for mis-selling and prioritize policyholder outcomes over sales incentives.

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.