India’s top banks earn Rs 21,773 crore in insurance commissions amidst mis-selling concerns

Other notable figures include IDFC First Bank at Rs 523 crore, Union Bank of India at Rs 383 crore, and Canara Bank at Rs 465 crore. Federal Bank and Bank of India brought in Rs 200 crore and Rs 163 crore, respectively, while Indian Bank earned Rs 129 crore.

This report comes at a time when the Reserve Bank of India (RBI) has recently expressed concerns over the rise of mis-selling of insurance products by banks. RBI Deputy Governor M Rajeshwar Rao said that the RBI is currently examining whether it necessitates framing of guidelines to address mis-selling of insurance products by banks.

The report further surveyed 10 banks - including Axis Bank, IDFC First Bank, IndusInd Bank, HDFC Bank, Kotak Mahindra Bank, ICICI Bank, Central Bank of India, Punjab National Bank and State Bank of India - on insurance commissions.

Of these banks, the report found, seven earned more than half of their insurance commissions by selling policies from affiliated insurers.

The commissions on life insurance sales range from two to over eleven times those on mutual fund sales, indicating an aggressive push toward selling insurance policies, regardless of whether such policies are appropriate for the customer’s needs or financial goals.

Life insurance policies typically have a lock-in period, and according to the report, around 43.3 per cent of all benefits disbursed by the top ten life insurance companies pertain to surrendered, withdrawn, discontinued, or lapsed (SWDL) policies. Which means, a significant share of policyholders either regretted their purchase or were unable to keep up with premium payments.

The survey cited in the report reveals that 57 per cent of relationship managers (RMs) actually acknowledged being instructed to sell irrespective of product fit.

In many cases, insurance policies are bundled with routine banking services such as loan disbursements, safe deposit lockers, or senior citizen savings accounts.

Persistency ratios of these insurance companies - indicators of how long policyholders continue to pay premiums - offer further evidence of widespread mis-selling, according to the report.

The average 61-month persistency for life insurers affiliated with their parent banks is 51 per cent, meaning nearly half of all policies lapse within five years, the report said.

The Securities and Exchange Board of India (SEBI) has banned upfront commissions in mutual funds and introduced transparent direct plans in 2018. However, the IRDAI has not taken such a step yet, which permits distributors to earn up to 65 per cent of the first-year premium on traditional insurance products.

The 2024 IRDAI guidelines even allow up to 80 per cent of expenses of management, including commissions, to be recovered from the first-year premium.

Moreover, the share of premiums underwritten by banks has doubled in the past decade, from 15.6 per cent in FY14 to 33.1 per cent in FY24, perhaps indicating the increasing role of banks in pushing insurance products.