<p>Households keep their hard-earned money in financial assets because they trust the ecosystem of banks, insurance companies, mutual funds, depository participants and regulators such as the Securities and Exchange Board of India (SEBI), the Reserve Bank of India and the Insurance Regulatory and Development Authority of India (IRDAI). They assume these markets they invest in are stringently regulated and that regulators vigilantly enforce rules to protect their interests. When trust weakens, however, the entire system becomes fragile. This is especially true of the insurance sector. Among financial products, life insurance remains one of the least willingly purchased. The reasons are many—product complexity, lack of awareness, and rampant mis-selling by agents and banks. </p>.<p>A comparison with the mutual fund industry is instructive. Mutual funds entered households’ portfolios much later than insurance yet, today, enjoy wider acceptance. Strong SEBI regulation, better disclosure norms, caps on expenses and direct plan options have increased investor participation. Returns are transparent, risks are clearly explained, and commissions are no longer hidden in complex structures. Association of Mutual Funds in India (AMFI) has also played a key role in creating awareness through advertisements—recall the Mutual Funds Sahi Hai campaign. As a result, the industry’s assets under management have increased nearly eightfold in the past twelve years.</p>.Namma name game.<p>Contrast this with insurance. According to IRDAI, insurance penetration in India is about 3.7% of GDP, compared with a global average of around 7.4%. Premiums per capita are high relative to the sum assured. While the assets managed by insurers are about Rs 74 lakh crore, the total premium collected in FY 2024-25 was Rs 11.93 lakh crore. Life insurance premiums alone account for about 90% of these assets and nearly 75% of premiums collected. </p>.<p>Insurance success should not be measured merely by the number of policies sold. It must be judged by persistency—the share of customers who continue policies beyond five years. Persistency ratios of around 50–60% suggest many customers exit early, often after realising the product does not match their needs. This indicates a structural problem. IRDAI’s grievance data also shows a steady rise in complaints under “unfair business practices”, many related to mis-selling. </p>.<p><strong>The rise of bancassurance</strong> </p>.<p>Banks now play a major role in selling insurance. More than half of life insurance premiums in India come through banks and brokers. The share of banks in new insurance premiums has risen from 20% to 33% in the past decade, second only to individual agents whose share has fallen from 72% to 49%. Among the six largest insurers—five of which are bank-owned—more than half of new premiums came from banks.</p>.<p>Another striking trend is the size of policies sold. The average premium per policy sold by corporate agents is about Rs 1.17 lakh, nearly three times the Rs 42,000 average sold by individual agents. Many private banks earn over 10% of their fee-based income from distributing insurance. When insurance becomes a cash cow for banks, the pressure on employees to sell more naturally increases. In the bancassurance model, incentives and promotions are often linked to the sale of life insurance products.</p>.<p>A high attrition rate in private sector banks is partly due to stiff targets attached to life insurance products. To address this risk, the RBI has issued draft rules aimed at curbing mis-selling, with norms expected to take effect from July 1. The guidelines seek to prevent banks from mis-selling insurance products and discourage bundling insurance with loans. Finance Minister Nirmala Sitharaman has also urged banks to focus on their core business—mobilising deposits and giving loans.</p>.<p>Part of the problem lies in divided regulation. The RBI regulates banks, while the IRDAI regulates insurance companies. When banks mis-sell insurance, responsibility between the two regulators becomes blurred. Since each oversees one part of the chain, enforcement can become weak and confusing. </p>.<p>The government should clarify the roles of the two regulators in cases of mis-selling. Other measures are also worth considering. First-year commissions could be staggered across the policy tenure so that agents have an incentive to ensure long-term policy continuation. Mandatory disclosure of commissions—showing how much the agent earns from a policy—would improve transparency. Finally, periodic suitability audits should become compulsory. Unless IRDAI takes urgent steps to address the industry’s flaws, it risks being seen as a blind watchdog or a paper tiger.</p>.<p>(The writers are former bankers, and currently train young bankers at Manipal Academy of Higher Education, Bengaluru)</p><p><em>Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.</em></p>
<p>Households keep their hard-earned money in financial assets because they trust the ecosystem of banks, insurance companies, mutual funds, depository participants and regulators such as the Securities and Exchange Board of India (SEBI), the Reserve Bank of India and the Insurance Regulatory and Development Authority of India (IRDAI). They assume these markets they invest in are stringently regulated and that regulators vigilantly enforce rules to protect their interests. When trust weakens, however, the entire system becomes fragile. This is especially true of the insurance sector. Among financial products, life insurance remains one of the least willingly purchased. The reasons are many—product complexity, lack of awareness, and rampant mis-selling by agents and banks. </p>.<p>A comparison with the mutual fund industry is instructive. Mutual funds entered households’ portfolios much later than insurance yet, today, enjoy wider acceptance. Strong SEBI regulation, better disclosure norms, caps on expenses and direct plan options have increased investor participation. Returns are transparent, risks are clearly explained, and commissions are no longer hidden in complex structures. Association of Mutual Funds in India (AMFI) has also played a key role in creating awareness through advertisements—recall the Mutual Funds Sahi Hai campaign. As a result, the industry’s assets under management have increased nearly eightfold in the past twelve years.</p>.Namma name game.<p>Contrast this with insurance. According to IRDAI, insurance penetration in India is about 3.7% of GDP, compared with a global average of around 7.4%. Premiums per capita are high relative to the sum assured. While the assets managed by insurers are about Rs 74 lakh crore, the total premium collected in FY 2024-25 was Rs 11.93 lakh crore. Life insurance premiums alone account for about 90% of these assets and nearly 75% of premiums collected. </p>.<p>Insurance success should not be measured merely by the number of policies sold. It must be judged by persistency—the share of customers who continue policies beyond five years. Persistency ratios of around 50–60% suggest many customers exit early, often after realising the product does not match their needs. This indicates a structural problem. IRDAI’s grievance data also shows a steady rise in complaints under “unfair business practices”, many related to mis-selling. </p>.<p><strong>The rise of bancassurance</strong> </p>.<p>Banks now play a major role in selling insurance. More than half of life insurance premiums in India come through banks and brokers. The share of banks in new insurance premiums has risen from 20% to 33% in the past decade, second only to individual agents whose share has fallen from 72% to 49%. Among the six largest insurers—five of which are bank-owned—more than half of new premiums came from banks.</p>.<p>Another striking trend is the size of policies sold. The average premium per policy sold by corporate agents is about Rs 1.17 lakh, nearly three times the Rs 42,000 average sold by individual agents. Many private banks earn over 10% of their fee-based income from distributing insurance. When insurance becomes a cash cow for banks, the pressure on employees to sell more naturally increases. In the bancassurance model, incentives and promotions are often linked to the sale of life insurance products.</p>.<p>A high attrition rate in private sector banks is partly due to stiff targets attached to life insurance products. To address this risk, the RBI has issued draft rules aimed at curbing mis-selling, with norms expected to take effect from July 1. The guidelines seek to prevent banks from mis-selling insurance products and discourage bundling insurance with loans. Finance Minister Nirmala Sitharaman has also urged banks to focus on their core business—mobilising deposits and giving loans.</p>.<p>Part of the problem lies in divided regulation. The RBI regulates banks, while the IRDAI regulates insurance companies. When banks mis-sell insurance, responsibility between the two regulators becomes blurred. Since each oversees one part of the chain, enforcement can become weak and confusing. </p>.<p>The government should clarify the roles of the two regulators in cases of mis-selling. Other measures are also worth considering. First-year commissions could be staggered across the policy tenure so that agents have an incentive to ensure long-term policy continuation. Mandatory disclosure of commissions—showing how much the agent earns from a policy—would improve transparency. Finally, periodic suitability audits should become compulsory. Unless IRDAI takes urgent steps to address the industry’s flaws, it risks being seen as a blind watchdog or a paper tiger.</p>.<p>(The writers are former bankers, and currently train young bankers at Manipal Academy of Higher Education, Bengaluru)</p><p><em>Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.</em></p>
