Each Monday, CRG holds an Open House to review the latest developments
in the regulatory world. Our experts offer their views for Policy Guidance.
Sector discussed this week: Insurance
1. Executive Summary:
In April, during the release of CRG report, “Regulatory Governance: The
Scope”, Mr Ajay Seth, Chairman, IRDAI, had stated what constitutes a “Better
Regulation” – “Regulations which are simpler, lighter, and faster. They are key
enablers of competitiveness. They rely upon evidence-based decision-making.
They achieve their objectives in the most efficient way.”
A panel discussion was held by the CRG team focussing on the IRDAI’s new
Draft rules, proposing a broad overhaul of commission rules in the country. As
Insurance stocks crashed fearing adverse impact of the rules on their business,
the panellists debated on how these reforms would affect the stakeholders like
banks, NBFCs and digital aggregators. The focus also shifted to issues faced by
the Indian insurance: widespread mis-selling, low policy adoption, and
unresolved health claims caused by unregulated hospital pricing.
2. Key legislative milestones and Regulatory priorities reshaping India's
Insurance sector:
CRG has been tracking the Insurance sector extensively over last 1 year.
Recent legislative and policy milestones shaping the market include:
● As reported in the Union Budget 2026-27, the Sabka Bima Sabki Raksha Act
(2025) aims to make insurance cheaper through initiatives like 100% Foreign
Investment, lower Entry Barriers and less Paperwork.
● In Dec 2025, the 100% FDI Bill was passed by Parliament.
● The IRDAI Chairman Mr Ajay Seth, had, over the last few months, notified
the following issues related to the Insurance sector:
● Discrepancies in high % claims but low pay-outs in Health sector. This
has resulted in loss of trust with Insurance reach remaining low in Indian
markets at 3.7%.
● Efforts focus on empowering the Insurance Ombudsman to build trust
through swift, fair awards, transparent practices, data security, and robust
grievance redressal.
3. Structural Analysis:
A foundational report was reviewed by the CRG that highlighted the major
systemic vulnerabilities within the sector:
● Insurance companies rely heavily on intermediaries (agents, brokers,
banks) to sell policies.
● To attract customers and corporate clients, insurance companies are
drastically undercutting prices
● Public Sector Insurers in Trouble: accumulating over ₹11,400 crore in losses in FY26 alone. Despite receiving ₹17,450 crore in
government bailout funds since 2020, these companies still need more money to
stay afloat.
● Private and foreign insurance majors are also struggling to make a
profit.
● Broker Monopoly: Out of 462 brokers in
India, just 10 control 70% of the market.
● Even 25 years after opening the insurance sector to private players, the
state-run Life Insurance Corporation (LIC) still holds over 73% of the entire
industry's investment assets.
● Other facts affecting the sector are - Lack of governance and transparency,
rule-breaking, and weak penalties.
4. IRDAI Roadmap & Reform Initiatives:
The IRDAI Chairman had, in Feb 2026, initiated 6 major reforms:
1. Overhauling distribution and cost structures - reducing renewal
cost of old policies
2. Launch of Bima Sugam - digital marketplace for comparing different
policies
3. Digital Public Infrastructure (DPI) - discussion paper being prepared: allowing faster
insurance approvals, easier switching between companies (portability), and
better fraud detection.
4. Better Accounting standards - aligning reporting with international
standards.
5. Better Financial standards
6. Higher transparencies to generate trust.
Other steps taken by IRDAI:
● Salesperson Accountability: IRDAI proposed digitally linking every policy to its individual salesperson to curb mis-selling and create a clear
audit trail for complaints.
● AI Governance Working Group: Formed to establish ethical, transparent,
and safe guidelines for adopting AI in insurance.
● Ind AS Accounting Shift: Mandatory transition to Indian Accounting
Standards (Ind AS) starting April 1, 2026, to align financial reporting with
global comparability and transparency standards.
5. Latest initiatives by IRDAI: Draft Rules on Distribution Economics:
IRDAI
released a two-part consultation paper titled “Recalibrating Economics of Insurance Distribution” on September 23, 2026. These aim to reduce distribution
costs, enhance transparency, curb mis-selling, and lower customer costs.
The
main proposed changes boil down to five key updates:
● Lower operational limits: Insurers face tighter caps on overall
management and administrative expenses.
● Capped commissions: Strict limits are set on how much agents and sales
channels can earn per product.
● No forced loan insurance: Lenders cannot make buying insurance a
mandatory requirement to get a loan.
● Restricted staff incentives: Tighter controls on bonuses paid to bank
and finance company employees for selling insurance.
● Strict mis-selling penalties: Greater accountability when agents or
financial institutions mislead customers into buying unsuitable policies.
In a major step, the IRDAI has proposed changes aimed at curbing the
practice of “Dark Patterns” on Insurance websites and distributor platforms.
While comparing policies, the prospective insurance client will not be needed
to give their contact and other details before availing of these services.
6. Impact on Stakeholders:
A report analyzes that the financial impact is unlikely to be same for
everyone.
● Bank or NBFC: Insurance commission is largely fee income. They lose a
high-margin, non-interest fee source.
● Insurance distributor such as Policy bazaar: They are massively affected
as commission is a core source of revenue.
● NBFCs: No more forced buying of Insurance policies to get loans.
● Insurer: For an insurer, commission is an expense paid to acquire
business. Cutting it could hurt sales growth, but it could also lower
acquisition costs.
● Customers: They are the potential primary beneficiaries through cheaper
policies, transparent pricing, and fewer forced or mis-sold products.
7. From CRG some of the perspectives that emerged are as follows:
The discussion started with one panellist wondering how some of the
banks are reporting huge incomes from insurance commission. And whether that
means many bank account holders are lured or pressured into buying an insurance
policy. The reason could be some private banks possibly show a huge income from
insurance commission, though this is not their main line of business.
Another CRG member showed concern over penetration of insurance in the
Indian market – mentioning that over the past few decades, the insurance
penetration density penetration in India has not risen. All the efforts made to
increase the insurance penetration hasn't really made any substantial dent in
the adoption of insurance in India. That mostly refers to the Health Insurance,
because health insurance is something that gets sold actively. There isn't much
of a claim problem from motor or from property or from other lines of
insurance. The health insurance claims are a highly contested thing for lots of
people. And that is where the challenge is. The solution, however, is not easy.
He also stressed upon the fact that Banks are selling majorly long-term
insurance policies, and the commissions are higher than for attracting
deposits. So, banks have become a conduit through bank assurance channels. They
are selling huge amount of insurance policies - the long-term policies.
While wondering whether that was the right way of going through it, he
also felt people complain more about health insurance. That is a very big
trouble area, primarily not because of insurance companies, but because the
hospitals in India are totally unregulated. We don't have any hospital system
of regulating any hospitals. The NABH (National Accreditation Board for
Hospitals & Healthcare Providers) or the NHA (National Health Authority)
essentially looks at the quality of the insurance of the health cover, but it
doesn't look at the price of the health cover. That is something that is beyond
the insurance regulator. The issue has not really picked up primarily because
health hospitals are a very powerful constituency which has been difficult to
crack. It's something that needs to be done. As regulatory governance issues,
we need to look at this very carefully.
The third CRG panellist agreed that one of the concern areas is in the
health sector. The CSR (claim settlement ratios) has varied drastically across
five or six of the top insurance companies. And that is of high concern –
especially the ones with drastically low claim settlement ratios. He had a
slightly different view on the Motors Insurance however – disagreeing that is
non-contentious. He felt there is a lot which goes into the MACT (Motor
Accident Claims Tribunal), the tribunal cases. He highlighted cases where
insurers drag catastrophic disability/death claims through courts for years
just to minimize pay-out. While emphasizing that the issue was not relevant to
the specific matter at hand, but still, that was a significant part of the all
the happenings on the motor vehicle insurance claims. Essentially, they try to
absolutely minimize the pay-out based on whether there is a life component or
partial disability and so on.
On the issue of cross-selling, he mentioned that agents earn low or zero
commission on mandatory policies (like basic Motor Third-Party insurance).
Thus, there is the compulsory personal accident cover which has to be done for
the owner driver. Thus, dealers/lenders force buyers to purchase unnecessary
add-ons, like personal accident cover for drivers alongside mandatory motor
insurance.
The
CRG discussion highlights key systemic challenges hindering India's
"Insurance for All by 2047" vision. It focussed on the key areas of
misselling and lack of market penetration. On the health insurance sector,
there were discussions on contentious claims that were driven by unregulated
hospital pricing. On the motor insurance front, the discussions harped on
critical areas of variability of high claim settlement and aggressive
litigation tactics.
