Summary of this article
Irdai flags mis-selling as the key reason behind policy lapses and complaints.
Insurance penetration stuck at 3.7 per cent despite strong premium and profit growth.
Life insurance penetration slipped to 2.7 per cent in FY25 from 2.8 per cent.
Regulator asks insurers to fix product design, incentives, and sales practices.
The insurance regulator has raised concerns over continuing instances of mis-selling in the insurance sector and has asked insurers to carry out a root-cause analysis to understand why mis-selling continues to happen in the insurance sector, according to the Insurance Regulatory Development Authority of India (Irdai) annual report FY 2024-2025.
“Mis-selling in the Indian insurance sector is a significant concern that involves the sale of insurance products to consumers without proper disclosure of terms, conditions, or suitability,” according to the annual report.
The regulator’s remarks come at a time when the industry is reporting strong financial numbers but struggling to convert growth into wider and more durable coverage. Irdai has noted that mis-selling remains one of the most frequent triggers for customer complaints and early exits from policies, weakening trust in insurance products and limiting long-term penetration.
1 December 2025
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Insurance Penetration In India
Insurance penetration in India remained unchanged at 3.7 per cent in FY25. Life insurance penetration slipped to 2.7 per cent from 2.8 per cent in FY24, while non-life insurance penetration remained flat at one per cent. Despite wider distribution networks and a steady rollout of new products, insurance penetration has failed to move, leading the regulator to raise questions about whether growth is being driven by genuine demand or by sales push alone. The numbers, Irdai noted, do not reflect deeper or more durable coverage.
The annual report points to repeated instances where policies are sold without clearly setting out key features such as exclusions, costs over time, or the long-term nature of the commitment. In several cases, the gaps come to light only after the policy has begun, leading to early surrenders, lapses, or complaints. The regulator has pointed out these points as weaknesses in sales processes.
The regulator has pointed to product design and sales incentives as contributing factors. Over time, this approach may boost premium collections, but it weakens confidence in insurance and limits the sector’s ability to expand its footprint in a meaningful way.
Strong Profits, Sharper Oversight
The observation comes in a year when insurers have reported a strong jump in profits. The life insurance industry reported an 18.14 per cent year-on-year increase in profits, taking the total to Rs 56,006 crore. The non-life insurance industry recorded close to 30 per cent growth, with profits rising to Rs 13,154 crore.
Of the 25 life insurers operating during the year, 18 reported profits. State-owned Life Insurance Corporation of India posted an 18.38 per cent rise in profit to Rs 48,151 crore. Private-sector life insurers together recorded a 16.69 per cent increase in profits to Rs 7,855 crore. In the previous financial year, life insurers had reported a net profit of Rs 47,407 crore.
The regulator has said the improved financial performance should not distract insurers from their obligations to policyholders.
Accountability Starts At The Top
The report makes it clear that the issue cannot be pinned only on agents or intermediaries. Irdai has stressed that insurers themselves shape outcomes by deciding product design, commissions, training standards, and sales targets. As a result, accountability lies with senior management and boards, not just frontline sellers.
The regulator has asked insurers to study complaint data, surrender patterns, and persistency ratios to identify where systems are failing. Addressing mis-selling, it said, requires preventive action rather than reactive grievance handling. Simplifying products, improving disclosures, and aligning incentives with long-term policy continuation are among the measures highlighted.
As India pushes to expand insurance coverage and build household financial protection, Irdai’s message is clear. Growth measured only in premiums and profits is not enough. Unless insurers address mis-selling at its roots and rebuild customer confidence, insurance penetration is likely to remain stuck, regardless of how fast the industry’s balance sheet grows.
