Insurance mis-selling: Irdai flags sharp rise in unfair practice complaints; asks insurers to fix root causes

Mis-selling continues to be a key concern in the insurance sector, with the regulator asking insurers to dig deeper into the root causes behind such practices, according to the latest annual report of the Insurance Regulatory and Development Authority of India (Irdai).While the total number of grievances against life insurers remained largely unchanged at 1,20,429 in 2024-25 compared to 1,20,726 in the previous year, complaints related to Unfair Business Practices (UFBP) rose sharply. Grievances under UFBP increased to 26,667 in FY25 from 23,335 in FY24, pushing their share in overall complaints to 22.14 per cent from 19.33 per cent earlier, the report showed.Mis-selling typically refers to the sale of insurance products without proper disclosure of terms, conditions or suitability for customers. Highlighting corrective measures, Irdai said insurers have been advised to assess product suitability, put in place distribution channel-specific controls and develop structured plans to address mis-selling grievances. This includes carrying out periodic root cause analysis, the regulator noted in its annual report for 2024-25.The finance ministry has also repeatedly cautioned banks and insurance companies against mis-selling insurance products, stressing the need to maintain strong corporate governance standards, reported PTI.The regulator pointed out that mis-selling often results in customers paying higher premiums, which eventually leads to lower policy renewals and a rise in policy lapses.On sector development indicators, insurance penetration in India remained unchanged at 3.7 per cent in FY25, significantly below the global average of 7.3 per cent. Life insurance penetration declined marginally to 2.7 per cent from 2.8 per cent a year earlier, while non-life insurance penetration stayed flat at 1 per cent.Insurance density showed a modest improvement, rising to $97 in FY25 from $95 in FY24. Life insurance density increased to $72 from $70, while non-life density remained unchanged at $25. Irdai noted that insurance density has shown a consistent upward trend since 2016-17.Insurance penetration reflects premiums as a share of GDP, while insurance density measures per capita premium spend, the report explained.