**Mis-Selling in Insurance Sector: A Growing Concern for Regulators**
Mis-selling remains a pressing issue in the insurance industry, prompting the Insurance Regulatory and Development Authority of India (Irdai) to call for a thorough root cause analysis to uncover the factors contributing to this problem. According to Irdai’s latest annual report, the number of grievances against life insurers has remained relatively stable, with 120,429 complaints recorded in 2024-25 compared to 120,726 in 2023-24. However, grievances related to Unfair Business Practices (UFBP) have surged from 23,335 in the previous fiscal year to 26,667 in the current one. This increase has raised the proportion of UFBP grievances to total complaints from 19.33% to 22.14%.
Mis-selling refers to the practice of selling insurance products without adequately disclosing their terms, conditions, or suitability for the consumer. To combat this issue, Irdai has recommended that insurers adopt various strategies, including evaluating product suitability, implementing specific controls for distribution channels, and developing a comprehensive plan to address mis-selling grievances through regular root cause analyses.
The Finance Ministry has consistently warned banks and insurance companies about the risks of mis-selling, highlighting the necessity of adhering to best practices in corporate governance. Mis-selling can lead to increased premiums for customers, often resulting in policyholders choosing not to renew their policies, which in turn contributes to a rise in policy lapse rates.
In terms of insurance penetration, the report indicates that it has remained unchanged at 3.7% in FY25, significantly lower than the global average of 7.3%. Specifically, life insurance penetration has decreased from 2.8% to 2.7%, while non-life insurance penetration has remained steady at 1%.
On a more positive note, insurance density in India has seen a slight increase, rising from USD 95 in 2023-24 to USD 97 in 2024-25. Life insurance density grew from USD 70 to USD 72, while non-life insurance density held steady at USD 25. This upward trend in insurance density has been consistent since 2016-17, reflecting gradual growth in the sector.
Insurance penetration and density are critical metrics for evaluating the development of a country’s insurance sector. While penetration measures the percentage of insurance premiums relative to GDP, density assesses the per capita premium based on the population.
**FAQ**
**What is mis-selling in the insurance sector?**
Mis-selling occurs when insurance products are sold to consumers without proper disclosure of their terms, conditions, or suitability, often leading to customer dissatisfaction and increased policy lapse rates.
