India's insurance regulator has raised a red flag over the persistent problem of mis-selling in the sector, calling for a deeper analysis to tackle the issue at its core. The Insurance Regulatory and Development Authority of India (IRDAI), in its latest annual report for 2024-25, highlighted that while overall grievances against life insurers remained nearly flat, complaints related to unfair business practices saw a concerning increase.
Sharp Rise in Unfair Practice Complaints
The data presents a worrying trend. The total number of grievances registered against life insurers was 1,20,429 in 2024-25, almost identical to the 1,20,726 logged in 2023-24. However, within this total, grievances specifically categorized under Unfair Business Practices (UFBP), which include mis-selling, jumped significantly. These complaints rose from 23,335 in FY24 to 26,667 in FY25, marking an increase of over 14%.
Consequently, the share of UFBP grievances as a portion of all complaints increased to 22.14% in FY25, up from 19.33% in the previous fiscal year. Mis-selling typically involves selling insurance products to customers without proper disclosure of critical terms, conditions, or without assessing the suitability of the product for the buyer's needs.
Regulator's Directive and Broader Concerns
To combat this issue, IRDAI has advised insurers to implement robust strategies. "To prevent or reduce mis-selling, insurers have been advised to implement strategies, such as assessing product suitability, implementing distribution channel-specific controls and developing a plan to address mis-selling grievances, including carrying out a root cause analysis on a periodic basis," the regulator stated in its report.
This advisory aligns with repeated cautions from the Finance Ministry to banks and insurance companies, stressing the importance of strong corporate governance to prevent mis-selling. The practice often backfires, leading to policy lapses as customers, burdened by unsuitable policies or higher premiums, choose not to renew their coverage.
Stagnant Insurance Penetration and Modest Density Growth
The annual report also shed light on the broader development metrics of India's insurance sector. A key indicator, insurance penetration (premiums as a percentage of GDP), remained static at 3.7% in FY25. This figure is significantly below the global average of 7.3%.
A breakdown shows that penetration in the life insurance segment slightly declined from 2.8% to 2.7% in 2024-25. For the non-life insurance industry, penetration held steady at 1% during the same period.
On a more positive note, insurance density (per capita premium) showed a modest improvement. The overall density in India increased from USD 95 in 2023-24 to USD 97 in 2024-25. Life insurance density rose from USD 70 to USD 72, while non-life insurance density remained stable at USD 25. The report noted that this upward trend in density has been consistent since 2016-17.
The twin metrics of penetration and density are crucial for assessing the depth and reach of the insurance sector in any economy, highlighting both the challenges and the slow, steady progress in India's market.
