Mis-selling Crackdown: RBI and IRDAI Target Bancassurance
Why in the news
The RBI is about to issue final guidelines on responsible business conduct to stop banks from pushing third-party products such as insurance. Rising commissions suggest insurers are spending more to win customers than they earn from them.
Key facts
- Commissions: ₹60,800 crore in life insurance alone in FY25, up 18%.
- Premium growth: only single digits, so commissions outran business.
- Guidelines: RBI’s Responsible Business Conduct framework, in final stage.
- EOM: IRDAI limits insurers’ operating costs and commissions, yet commission spending keeps climbing.
| Proposed lever | How it works |
|---|---|
| Trail-based/staggered commission | Pay spread over the policy’s life, instead of 30-40% of premium in year one |
| Board accountability | Insurer boards held responsible for commission policies, even those within legal limits |
| No sales inducements | End bank contests and prizes for top insurance sellers |
Background
- Mis-selling: selling a product by misrepresentation or hiding risks, e.g. bundling insurance with loans or pushing complex investments to a simple saver.
- Bancassurance: a bank-insurer tie-up where branches sell insurance; heavy upfront commissions tempt staff to chase targets over customer needs.
- Front-loading: paying most of the commission in the first year.
Way forward
- If a cheated customer stops paying, a trail structure stops the agent’s earnings too.
- Removing contests should reduce aggressive selling.
Exam angle
- Regulators: RBI and IRDAI; EOM caps come from IRDAI.
- Related terms: bancassurance, front-loading, trail commission, conduct risk.