The Insurance Regulatory and Development Authority of India (IRDAI) has sounded a fresh alarm over the persistent problem of mis-selling in the insurance sector. The regulator's latest annual report for 2024-25 highlights that unfair business practices remain a critical concern, urging companies to conduct deeper investigations into the root causes driving such sales tactics.
Sharp Rise in Unfair Practice Grievances
While the overall number of complaints against life insurers saw little change, grievances specifically related to Unfair Business Practices (UFBP) witnessed a significant spike. The data shows that UFBP complaints rose to 26,667 in the financial year 2024-25, up from 23,335 in FY24. This represents a notable increase of over 14%.
Consequently, the share of UFBP grievances in the total complaints portfolio climbed to 22.14% in FY25, compared to 19.33% in the previous year. The total grievances stood at 1,20,429 for the year, marginally lower than the 1,20,726 recorded in FY24.
Regulator's Directive and Corrective Measures
Defining mis-selling as the sale of insurance products without proper disclosure of terms, conditions, or suitability for the customer, IRDAI has advised insurers to implement robust corrective actions. The regulator emphasized the need for companies to assess product suitability rigorously and establish controls specific to each distribution channel.
Furthermore, insurers have been directed to develop structured plans for addressing mis-selling complaints. A key part of this directive involves carrying out periodic root cause analysis to understand and eliminate the drivers of these practices. The finance ministry has also echoed these concerns, repeatedly cautioning banks and insurance firms against mis-selling and stressing the importance of strong corporate governance.
The report pointed out the detrimental long-term effects of mis-selling, noting that it often leads to customers paying higher premiums. This, in turn, results in lower policy renewal rates and a subsequent increase in policy lapses, damaging both customer trust and the industry's sustainability.
Stagnant Insurance Penetration and Improving Density
On broader sector development, the report presented a mixed picture. Insurance penetration in India remained unchanged at 3.7% of GDP in FY25, a figure that remains significantly below the global average of 7.3%. A breakdown shows that life insurance penetration dipped slightly to 2.7% from 2.8% a year earlier, while non-life insurance penetration stayed flat at 1%.
In contrast, insurance density, which measures per capita premium spend, showed a modest positive trend. It improved to $97 in FY25 from $95 in FY24. Life insurance density increased to $72 from $70, while non-life density held steady at $25. IRDAI observed that insurance density has maintained a consistent upward trajectory since the 2016-17 period.
The report clarified that while insurance penetration indicates premiums as a percentage of GDP, insurance density reflects the average premium spent per person in the country.
