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Proposed changes to insurance distribution rules could give mis-selling a direct financial consequence through commission claw-backs, while requiring insurers and distributors to track the person responsible for each policy, Kotak Institutional Equities said in a report.
The brokerage said the proposed framework would make documented needs and suitability analysis mandatory for life insurance sales above a defined ticket size. Customer consent would also not absolve the seller of responsibility if a policy is found unsuitable. Documented needs and suitability analysis becomes mandatory for sales by life insurers above a defined ticket size, and customer consent will not absolve responsibility for an unsuitable sale, the report said. Under the proposed changes, mis-selling would trigger a claw-back of the commission paid on the policy. Each policy would be tagged to the functional identity of the person who sold it, while instances of mis-selling could be placed in the public domain as part of that person's performance record, the report said. Kotak said the framework also proposes 12 specific illustrations of mis-selling. These include selling non-participating products in place of bank deposits, selling unit-linked insurance plans (ULIPs) to risk-averse or post-working-age customers, selling regular-premium products to customers without steady income and selling life products for inheritance planning. The proposed measures are part of wider changes to insurance distribution that seek to strengthen suitability, transparency and accountability. The report said the proposals are aimed at addressing concerns over distribution costs and incentives in the sector. The report noted that insurance payouts have grown faster than premiums in some channels. Among sampled life corporate agents, new business premium rose 1.3 times from Rs 630 billion to Rs 800 billion between FY2023 and FY2025, while remuneration increased 2.3 times from Rs 96 billion to Rs 216 billion. The proposed framework would also prohibit volume-linked and reward-linked incentives for bank and NBFC staff selling insurance, including monetary and non-monetary benefits. Premiums would have to move directly from a customer's own account to the insurer, with third-party payments prohibited except through Bima-ASBA. For customers, the proposals would also prohibit dark patterns and require product features, pricing and claims performance to be accessible without first obtaining personal details. Insurers and large distribution entities would have to publish commission policies on their websites, while commissions would be disclosed on policies with cover above Rs 500 million. The proposals, outlined in a consultation paper released late on Wednesday, seek to reintroduce commission caps across life, health and motor insurance. (ANI)
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