Insurance Sales Tactics Under Fire: Are Policies Suitable?

Insurance regulation needs to evolve beyond simply capping commissions. The core issue lies in enforcing product suitability and holding distributors accountable for mis-selling. Complex, savings-linked insurance products, coupled with upfront commissions and sales targets, often lead to recommendations that benefit sellers more than buyers.

Recent proposals from Irdai recognize the current distribution model's costliness and heavy incentives. These include reducing expense limits, capping commissions, and tightening controls on incentives. However, the focus must shift from mere disclosure to actual policyholder outcomes.

The Reserve Bank of India's framework emphasizes that unsuitable sales are mis-selling, even with customer consent. This principle should extend to insurance, ensuring advice is tailored to individual circumstances like age, liquidity, and risk capacity.

Reforms should consider longer-term remuneration tied to policy persistency and service quality, enforceable suitability obligations, stricter controls on unsolicited selling, and full transparency on total compensation. The ultimate aim is to ensure distribution economics are driven by genuine policyholder value, not by complexity that conceals costs.