Curb misselling, not agents: Insurance reform needs a scalpel, not a hammer

Ask anyone who was sold a 'guaranteed wealth-builder' and later tried to escape it. The product was costly, unsuitable and locked shut. That is misselling, and it is not rare. It usually begins with one broken incentive: when a seller earns almost everything from the first sale, the complicated, high-commission policy gets sold rather than the simple one the customer needed.

So, IRDAI's instinct to rethink how intermediaries are paid is sound. The regulator wants lower distribution costs, more policies that stay alive, and better value for buyers. The worry is not the goal. It is whether the fix damages the network that reaches ordinary Indians in the first place.

Two proposals are in play. One spreads the commission across the life of the policy instead of front-loading it. The other ties pay to an agent's 'effort' in sourcing and serving customers. Both are meant to protect the buyer. Both also add complexity to a system that runs on pay being simple and predictable.


Individual agents still bring in roughly 51% of individual new-business premium. Banks, through bancassurance, account for about 33%, and the rest comes from direct, online and broker channels. Two decades ago, agents wrote nearly 90% of the business, so the shift to banks has been dramatic. LIC remains agent-heavy, while most private insurers lean on their bank partners.

That split matters because the conduct risk is not spread evenly.

In 2024-25, life insurers sold about 2.70 cr new individual policies, LIC sold 1.78 cr of those, private insurers sold about 92.5 lakh.

Complaints filed under unfair business practices rose to 26,667, from 23,335 a year earlier - up roughly 14%.

What makes that stand out is the backdrop. Total life complaints barely moved, from 1,20,726 to 1,20,429. The pie stayed the same size while the misselling slice grew from about 19% to 22%. Set 26,667 against 2.70 cr new policies, and it is close to 1 in 1,000.

Although the share is small, the trend is negative and reflects issues with the sale process.

Here are the parts reformers should sit with. Much of the loudest misselling has come from bank counters - policies dressed up as FDs or quietly bundled into loans. One hears a lot of misselling in bundled loans. Both FM and IRDAI chief said as much in 2024. Yet, commission reform lands hardest on the individual agent, whose pay is visible and straightforward to cut, not on the bank channel, where the incentive is buried in a wider banking relationship. Squeeze the agent, who is an easier target, and you may leave the bigger problem untouched.

The reforms could also backfire where India can least afford it. Life insurance still reaches under 3% of GDP, and crores of Indians hold no cover at all. That last mile runs on roughly 26 lakh individual agents, most working in small towns and villages where a policy is sold across a kitchen table, not a screen. For them, the upfront commission is working capital - it pays the bus fare, the repeat visits, and the hours spent explaining what a policy does. Cut it too sharply and you thin out the people who reach the uninsured.

The effort-linked idea is shakier still. Who defines effort? Who audits it? Who settles the fight when an agent disagrees? Pay that turns on judgement rather than a clear rule breeds disputes and paperwork in a business that loses agents faster than it can train them.

None of this argues for inaction. There are sharper tools: clearer disclosures, fewer and simpler products, a mandatory needs check before any sale, bigger rewards for keeping policies alive, recorded sales conversations, and real penalties when misselling is proven, applied to every channel, banks included.

These go at actual causes without tearing up how agents earn a living. IRDAI has already moved to macro-level oversight of capping expenses of management (EoM) category-wise, and, hence, getting again into micro-level oversight is a step backwards.

India's insurance market does need reform. It needs a scalpel, not a hammer. Protect the customer, absolutely. But do not weaken the network that carries insurance to those who still have none. In this business, distribution is not a cost to be squeezed. It is the engine of growth.