COURTKUTCHEHRY SPECIAL ON MISUSE OF INSURANCE POLICY MIS-SELLING
IRDAI Cracks Down on Mis-Selling: Insurance Bill 2025 Brings Stronger Safeguards
New law mandates transparency in commissions and product suitability
Customers to benefit from stricter oversight and grievance redressal
By Our Legal Reporter
New Delhi: December 29, 2025
What is Mis-Selling in Insurance?
Mis-selling occurs when insurance agents or intermediaries sell policies that do not match the customer’s needs, often by hiding facts or exaggerating benefits. It is one of the biggest challenges in India’s insurance sector.
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Common examples include:
- Selling long-term savings plans disguised as short-term investments.
- Promising guaranteed returns without explaining risks.
- Pushing high-commission products over customer-friendly ones.
- Misrepresenting health insurance coverage or exclusions.
- Encouraging customers to buy policies they cannot afford.
Such practices erode trust and leave policyholders with unsuitable products.
Tricks Used by Insurance Agents That Buyers Should Cross-Check
Policyholders should be alert to these common mis-selling tactics:
- Guarantee trap: Agents promise “guaranteed returns” without clarifying conditions.
- Short-term pitch: Presenting long-term ULIPs or endowment plans as short-term investments.
- Hidden exclusions: Not disclosing exclusions in health or life insurance.
- Commission-driven advice: Recommending products with higher commissions rather than customer benefit.
- Pressure selling: Using urgency or fear to push immediate purchase.
Customers should always cross-check policy documents, ask for written details, and verify commission structures.
Existing Rules Before 2025
Before the new Bill, IRDAI had issued guidelines to curb mis-selling:
- Agents had to disclose basic product features.
- Limited oversight on commission structures.
- Grievance redressal mechanisms existed but were slow.
- Bancassurance (banks selling insurance) often led to conflicts of interest.
Despite these rules, mis-selling remained widespread due to weak enforcement and opaque practices.
Proposed New Changes Under Insurance Bill 2025
The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 introduces major reforms:
- Commission transparency: Agents must disclose commissions and incentives to customers.
- Cap on commissions: IRDAI empowered to cap commissions, remuneration, and rewards.
- Conflict of interest checks: Especially in bancassurance, where banks push policies alongside loans.
- Grievance redressal: Stronger mechanisms for faster resolution of customer complaints.
- Suitability norms: Agents must ensure products match customer needs and financial capacity.
- Stricter penalties: Mis-selling can attract fines and cancellation of licenses.
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Case Context
The reforms are part of the Sabka Bima Sabki Raksha Bill, 2025, introduced in Parliament to strengthen insurance regulation. The Bill empowers IRDAI with greater oversight powers, making it a landmark step in consumer protection.
How This Benefits Customers
The new rules will bring multiple benefits:
- Transparency: Customers will know how much agents earn from selling a policy.
- Fair advice: Agents will be discouraged from pushing unsuitable products.
- Better grievance redressal: Faster complaint resolution builds trust.
- Reduced mis-selling: Stricter penalties deter unethical practices.
- Customer-centric market: Insurance becomes more aligned with policyholder needs.
Expert Opinions
- Industry analysts say the reforms will increase insurance penetration by building trust.
- Consumer rights groups welcome the move, noting that mis-selling has been a major barrier.
- Insurance companies will need to train agents better and adopt transparent practices.
Comparison of Old vs New Rules
|
Aspect |
Existing Rules |
Proposed Changes (2025 Bill) |
|
Commission disclosure |
Limited |
Mandatory disclosure to customers |
|
Commission cap |
Not strict |
IRDAI empowered to cap commissions |
|
Bancassurance |
Conflicts of interest |
Stricter oversight and transparency |
|
Grievance redressal |
Slow, weak |
Stronger, faster mechanisms |
|
Penalties |
Mild |
Heavy fines, license cancellation |
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Broader Implications
The reforms will:
- Strengthen India’s insurance sector.
- Improve customer confidence.
- Align India with global best practices in insurance regulation.
- Encourage long-term savings and risk protection.
Conclusion
The Insurance Bill 2025 marks a turning point in India’s insurance regulation. By cracking down on mis-selling, empowering IRDAI, and mandating transparency, the reforms will protect customers and strengthen trust in the insurance industry.
This judgment ensures that insurance in India truly becomes “Sabka Bima, Sabki Raksha”—insurance for all, with protection for all.
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