The Insurance Regulatory and Development Authority of India (IRDAI) has introduced a significant proposal aimed at enhancing accountability in the insurance sector. This initiative seeks to digitally link each insurance policy to the specific individual who facilitated its sale, which includes bank employees, agents, and brokers. This change is anticipated to streamline the identification of responsible parties in cases of alleged mis-selling.

This proposal is part of a broader reform effort following the enactment of the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025. Alongside enhancing the scope for investments and revising intermediary rules, the IRDAI’s plan encompasses various measures to boost transparency, accountability, and consumer protection across the insurance landscape.

Rationale Behind the Proposal

Concerns regarding insurance mis-selling have been prevalent among policyholders in India. Many customers have reported instances where they received policies presented as fixed deposit-like products or guaranteed-return plans, only to later face unexpected lock-in periods, surrender charges, and exclusions. The proposed tagging of insurance policies to individual sellers aims to enhance traceability, ensuring that a clear record exists regarding who recommended a policy and whether the advice met the customer’s needs.

While the intention is to improve accountability, it is crucial to note that not every complaint of mis-selling will automatically lead to a favourable resolution for the policyholder. The resolution will still depend on existing documentation, disclosures, and other records that were maintained during the policy sale.

This proposal aims to hold sales personnel more accountable by confirming that they had a responsibility to ensure the product aligned with a customer’s expectations. Enhanced accountability may potentially deter mis-selling practices, thereby bolstering consumer confidence in the insurance sector.

Implications for Policyholders and Intermediaries

For individuals purchasing insurance, the proposed changes promise enhanced accountability. With a clear record of the individual responsible for the sale, investigations into complaints could be streamlined and more efficient. This change may also lead to better documentation practices during sales interactions, with an increased emphasis on clearly explaining policy features, including premiums and exclusions.

If the proposal is adopted, banks, insurance agents, and brokers will need to revisit their sales protocols to comply with the new regulations. Increased monitoring of sales staff will be essential, ensuring that the guidance provided to customers can be substantiated if necessary. This shift may help eliminate confusion experienced by customers who often misinterpret insurance products as being similar to standard banking services.

Additionally, the regulator has suggested moving from fixed-term licences to a perpetual registration system for intermediaries, such as brokers and corporate agents. These registrations would remain active provided that annual fees are paid, thus ensuring a more sustained regulatory framework. The IRDAI is also planning to increase penalties for violations from Rs 1 crore to Rs 10 crore to strengthen compliance measures.

Advice for Insurance Buyers

Despite the potential benefits of this tagging system, it remains essential for customers to perform their own due diligence prior to purchasing insurance policies. Policyholders should thoroughly understand the nature of the product being offered, be it a protection plan, savings plan, or market-linked insurance. Furthermore, verifying details such as premium payment terms, exclusions, waiting periods, and potential surrender charges is crucial to avoid unexpected consequences.

Customers are advised to retain copies of all associated documents, including proposal forms and payment receipts, and should utilise the free-look period to assess the policy after issuance. If discrepancies arise between the policy sold and the terms explained, concerns should be addressed promptly within the stipulated timeframe. Should these changes be enacted, the IRDAI’s initiative could fundamentally alter how insurance policies are presented and sold in India, enhancing buyer protection and improving overall industry standards.

Long or Short, get news the way you like. No ads. No redirections. Download Newspin and Stay Alert, The CSR Journal Mobile app, for fast, crisp, clean updates!

App Store –  https://apps.apple.com/in/app/newspin/id6746449540 

Google Play Store – https://play.google.com/store/apps/details?id=com.inventifweb.newspin&pcampaignid=web_share