IRDAI proposes clawback of commissions in case of mis-selling

Mumbai: In a first, IRDAI has proposed clawing back commissions from insurers in cases of mis-selling, while making individual sales staff more accountable by tagging their identity to policies sold and placing information on mis-selling incidents in the public domain. The regulator has proposed banning incentives to bank and NBFC employees linked to insurance sales volumes or rewards, while requiring the salesperson’s identity to be tagged to each policy.

Under the proposed framework, distributors could be rewarded for the quality of sales and servicing, while commissions could be clawed back in cases of mis-selling. The regulator has also proposed greater accountability for individual sales staff by tagging their identity to policies sold and putting information on mis-selling incidents in the public domain.

“Proper claw back arrangements can be put in place for recovering excess payments for cases where policies are cancelled,” said IRDAI. “Any delay should attract payment of interest which should be charged to operating expenses.”


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IRDAI said high distribution costs may be contributing to poor policy persistency, higher policy costs and commission-driven sales. IRDAI said that mis-selling incidences should also lead to commission claw-back by insurers. The regulator has proposed a ban on incentives to bank and NBFC employees that are linked to insurance sales volumes or rewards. The salesperson’s identity would also have to be tagged to each policy, making it easier to establish accountability for sales practices.

The proposals seek to move the industry toward a system of pay for the right sale and pay for the right behaviour, with servicing and persistency forming part of the distribution economics.

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IRDAI has flagged the sharp rise in distribution costs as a concern. For private life insurers, the total expense ratio fell from 21.3% of gross premium in FY15 to 16.5% in FY21 before rising to 20.2% in FY26, according to the consultation paper.

In general insurance, the ratio declined from 30.3% in FY15 to about 25% in FY19 before increasing to 32.1% in FY26.