Irdai Set To Bring Out New Paper On Insurance Distribution Reforms

Insurance regulator Irdai is expected to put out a paper shortly on changes to the way insurance products are distributed, sold, and serviced in the country.

The proposed paper is likely to examine the role of insurers, agents, brokers, banks, online platforms, and other intermediaries in the insurance sales process. While the final regulations may take time, the broad message is clear: policyholder protection will remain central to any new framework.

Swaminathan S. Iyer, member (life), Irdai, has told ETNOW that the regulator is working on comprehensive distribution reforms. The consultation process is expected to seek industry feedback before any formal changes are brought in.

For policyholders, the proposed reforms matter because the distribution channel often shapes the buying decision. A customer may buy a policy through a bank relationship manager, an insurance agent, a broker, an employer, an online platform, or a direct insurer channel. The experience can differ sharply depending on who is selling the product and how clearly its features, exclusions, charges, and renewal requirements are explained.

Why Insurance Distribution Needs Attention

Insurance mis-selling has often been associated with bank-led sales, where customers may buy a policy after being approached by a relationship manager they already trust. However, the issue is not confined to banks. This can happen through any sales channel when a buyer ends up with a policy that is not suited to their income, needs, or ability to keep paying the premium.

A health insurance buyer may later find that the policy puts a cap on room rent or requires them to bear part of the hospital bill. Similarly, someone buying life cover may be pushed into a savings plan without being clearly told how long premiums have to be paid or how much could be lost on an early exit. In some cases, a customer may be told that a policy is low-risk or easily withdrawable, only to discover later that the terms are different from the sales pitch.

This is why the focus on informed decision-making is important. A policyholder should be able to understand what is being bought, how long premiums need to be paid, what happens on non-payment, what is excluded, and whether the policy genuinely fits the intended purpose.

Persistency May Become A Bigger Distribution Metric

One of the key areas likely to receive attention is persistency. In insurance, persistency refers to the ability of an insurer and its distributors to ensure that customers continue their policies beyond the initial year, according to a recent report by ETNOW.

A policy that lapses soon after purchase can leave the customer without adequate protection and may also indicate that the product was either unsuitable or not properly explained at the point of sale. This matters more in life insurance, where policyholders may have to keep paying premiums for several years.

Several insurers have already started linking distributor payouts and incentives to policy persistency. The regulator may examine whether such practices need to become more structured under the new distribution framework.

However, persistency cannot be viewed only as a sales target. People may stop renewing a policy when money is tight, their needs have changed, service has been poor, or they did not fully understand what they had bought. The eventual rules may need to balance insurer accountability with customer circumstances.

Commissions And Bancassurance Could Also Be Reviewed

The proposed reforms may also look at commission structures, distributor incentives, and bancassurance partnerships. Irdai has indicated that it does not favour an overly prescriptive approach to commissions or distribution arrangements.

This suggests Irdai may give insurers and distributors room to decide how they work together and how commissions are paid, but with checks to ensure customers are not sold policies that do not suit them.

For customers, the real test will be whether the eventual framework improves disclosure, strengthens accountability, and makes it easier to identify who sold the policy in case of a complaint. The discussion paper will be closely watched by insurers, banks, brokers, and policyholders, as it could shape the next phase of insurance distribution in India.

FAQs

What could Irdai’s proposed distribution reforms mean for insurance buyers?

The changes may lead to better disclosures at the time of sale and clearer accountability for the insurer, bank, agent, broker or platform that sold the policy.

Why is persistency likely to be part of the discussion?

A policy that lapses early can leave the customer without cover. Irdai may examine whether sellers should be held more responsible for ensuring that buyers understand and continue suitable policies.

Will the proposed changes affect bank-sold insurance policies?

Banks and their relationship managers may come under closer focus, but the reforms are expected to cover all sales channels, including agents, brokers, online platforms and direct insurers.