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The Insurance Regulatory and Development Authority of India (IRDAI) is confident of curbing mis-selling with the help of proposed reforms. In an interview to businessline, IRDAI Chairman Ajay Seth has said that a better-structured mechanism has been proposed, comprising linking commission payout to persistency and prohibiting the bundling of loan with insurance. He also informed that actual payment and not just claim settlement headline numbers in health insurance is being monitored.

Here are excerpts from his interview with businessline:

What has been feedback so far on the consultation paper titled ‘Recalibrating Economics of Insurance Distribution’?

The feedback so far has been active and wide-ranging, which is what consultation should generate. We have been meeting insurers, distributors, industry bodies and associations, and comments are open until October 25. It would be premature to draw conclusions from the feedback before the due date. Once it does, every comment will be examined carefully, and suggestions backed by data and sound economic logic. That will serve policyholders, will be given due weight.

Based on this, we will issue draft regulations, which will again be placed for public consultation before final notification. I would also urge policyholders and the public to share their views actively. As a regulator, we hear from regulated entities quite easily. But for these reforms, the views of the public matter even more.

Why is there a need to review the expense of management (EoM) and capping the commission?

What we are doing is a recalibration based on experience and evidence. The 2023 framework gave insurers flexibility, relying on Board-approved commission policies, in the hope that savings would ultimately reach policyholders.

Instead, the flexibility went into distributor payouts. Board approval often became a formality, and rewards added 30-60 per cent on top of base commission. Private life insurers’ total expenses rose from around 16 per cent in FY21 to around 22 per cent now; for private general insurers, from around 25 per cent in FY19 to around 32 per cent.

Meanwhile, premiums have only tracked GDP, not outpaced it, and the number of policies has not grown enough. The lesson is not that flexibility is inherently wrong, but that flexibility without adequate guardrails can produce unintended outcomes. The proposed framework therefore combines discipline with differentiation.

The objective is to move from commission-led distribution to quality and value-led distribution.

The consultation paper is open for comments until October 25. We will consider all feedback and then issue draft regulations, which will again be placed in the public domain for comments before the final regulations are notified.

We are considering two possible dates for implementation: 1 January 2027 or 1 April 2027. The expenses of management limits will follow a phased glide path giving insurers time to restructure their cost base. There is an earlier-the-better approach, but getting the reforms right is more important than speed.

What do these proposals mean for policy holders?

The reforms are designed around one test: does the ordinary policyholder get better value? Lower costs should show up as lower premiums or a more moderate rate of increase, better returns on savings products and stronger claim outcomes. Price and quality are inseparable, so affordability must go with better products and service. Policyholders will also see a fairer buying experience. Product and price information should be available without first surrendering personal details.

Mis-selling is big concern, how these proposals aim to check that?

Mis-selling arises because upfront commissions are too high and there is hardly any reward for persistence; first-year commission can go as high as 40 per cent to 50 per cent. The reforms tackle this structurally in the following manner:

- The incentive is removed. First-year commission is lower, with more paid as the policy persists. This orients behaviour towards selling right so that the policy reaches maturity – that way it delivers best value to everyone.

- Suitability becomes a real obligation. Each sale records the customer’s needs and why the product fits and is linked to the person who solicited it.

The remedy is meaningful. Where mis-selling is established, the full premium goes back to the policyholder, the commission is clawed back, and responsibility is joint and several between the insurer and the distribution entity. The end seller is also identified.  Compulsory bundling with loans is curbed. Finally, the Public Insurance Registry will make conduct of everyone involved visible, so customers can know not just their product but also their insurer and distributor.

There have been complaints that health insurance companies are arbitrarily hiking the premium citing medical inflation at 14-15 per cent? Has IRDAI done any study about such inflation?

Medical inflation and rising healthcare costs are real, but they cannot explain every increase. Premiums are a function of claims experience which is largely dependent on healthcare costs but is also impacted by insurers’ costs – operations and distribution. The economics must be seen as a whole.

Along with CII, we have set up joint working groups of healthcare providers and insurers. These groups are working on various issues that need to be addressed to make the policyholders journey through healthcare and insurance better. One of the working groups is conducting analytical studies on claims and medical inflation, which will give us a sounder evidence base.

The proposed Public Insurance Registry will also make comparable data available, including how often and by how much insurers revise premiums.

There are very high number of complaints about claim rejection under health insurance? What kind of solution does IRDAI have for this?

We share the concern. Grievances in general insurance have risen significantly, and claims make up a large share of them. Our solution works at three levels:

- Existing safeguards: No claim can be rejected without approval of the insurer’s Claims Review Committee, with reasons citing specific reasons policy terms.

- Removing the root cause of disputes: Five hospital–insurer working groups, guided by IRDAI and NHA, have been addressing a joint code of conduct, standard provider categorisation, scaling up the National Health Claims Exchange, and claims and medical inflation. A paper on standardising the claims process will follow, which is aimed at improving claims management.

- Claims reforms and transparency: Comprehensive claims management reforms are planned for FY2027-28, and the Public Insurance Registry will let customers see an insurer’s claims record before they buy.

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