What is mis-selling in insurance, and why has IRDAI flagged it in its latest report? | Explained

Representative image

• Life insurer complaints steady, but mis-selling and unfair practices increased
• India's life insurance penetration dropped to 2.7%, below the global average.
• IRDAI urges insurers to tackle mis-selling with better controls and root cause analysis.

Did our AI summary help?

The total number of complaints against life insurance companies remained largely unchanged in FY25, while the grievances related to mis-selling and unfair business practices witnessed a rise, according to IRDAI's annual report for 2024–25.

In the report, the Insurance Regulatory and Development Authority of India (Irdai) said mis-selling continues to be a “significant concern” for the sector and has directed insurers to conduct periodic root cause analyses to identify why such complaints persist.

The regulator’s concerns come at a time, particularly when insurance penetration in India has dropped below global levels. As per the report, overall insurance penetration remained unchanged at 3.7 per cent in FY25, compared with the global average of 7.3 per cent, adding that Life insurance penetration declined to 2.7 per cent during the year, while non-life insurance penetration remained flat at 1 per cent.

What mis-selling means for policyholders

The term mis-selling in insurance sector means selling insurance policies without adequate disclosure of product features, costs, risks or suitability. Such practices often result in customers buying policies that do not align with their financial needs or long-term goals.

The regulator noted that mis-selling frequently leads to higher premiums, dissatisfaction and ultimately non-renewal of policies, contributing to a rise in lapse cases across the industry.

Unfair business practice complaints see sharp rise

According to the IRDAI report, total grievances registered against life insurers stood at 1,20,429 in FY25, broadly in line with 1,20,726 complaints recorded in the previous year.

However, complaints categorised under unfair business practices (UFBP) rose to 26,667 in FY25 from 23,335 in FY24. This pushed the share of UFBP-related grievances to 22.14 per cent of total complaints, up from 19.33 per cent a year ago — signalling a deterioration in the quality of sales practices.

Regulator asks insurers to fix the root cause

To prevent or reduce mis-selling, Irdai has advised insurers to implement stronger product suitability assessments, introduce distribution channel-specific controls and create structured plans to address mis-selling grievances.

This includes conducting regular root cause analyses instead of treating complaints as standalone issues, the regulator said in its annual report.

Significantly, the Finance Ministry has time and again cautioned banks and insurance companies against mis-selling, especially through bancassurance channels, emphasising the need to uphold corporate governance and customer protection standards.

Common type of mis-selling done

How to protect yourself

• First and foremost, read the policy document carefully.
• Don't rush: Genuine offers will still be available after consideration.
• Ask questions: Clarify doubts about exclusions, charges, benefits, and lock-in periods.
• Be skeptical of unrealistic promises: If it seems too good to be true, it likely is.
• Fill out forms yourself: Ensure all information is accurate and completed by you to prevent tampering by agents.
• Get everything in writing: Ensure all promises and assurances are documented; verbal promises hold little legal weight.