Regulator cracks down on misselling as life insurers face pressure to separate protection from investment
India’s life insurance industry is heading for a structural reset.
Insurtechs and digital insurers are being nudged to rethink products, governance, and sales incentives as the regulator sharpens its focus on misselling. Insurance unicorn Acko has moved first, committing to a “pure protection” model that decouples insurance from investment. Will others follow, even at the cost of revenue?
Acko Draws a Clear Line Between Insurance and Investment
Acko announced it will disassociate life insurance from investment-linked benefits, positioning protection as the sole objective.
- The move targets transparency and adequacy of life cover.
- It rejects bundling insurance with “50 other benefits” that dilute protection.
Founder Varun Dua was blunt: investment-linked insurance “lures you with getting something back” while delivering inflated premiums and inadequate cover—returns, he argued, that even a fixed deposit could beat.
Why This Matters in India’s Life Insurance Market
India’s life insurance industry is dominated by mixed products.
- ULIPs and endowment plans form the bulk of policies sold.
- Pure term insurance accounts for only a fraction of the market.
While mixed products promise returns, they often lack clarity, lock customers in for decades, and blur the core purpose of insurance—financial protection.
Revenue at Risk for Insurers
Industry insiders warn that compliance won’t be painless.
- Investment-linked products generate higher commissions.
- Shifting to pure insurance could mean forgoing a significant revenue chunk.
“Most insurers will have to recalibrate their life insurance channels,” said one industry source, especially where banks and insurers operate in close coordination.
Can Separating Insurance End Misselling?
Misselling remains a systemic concern.
- Many buyers are unaware they’ve purchased investment-linked, not pure insurance.
- Claim delays and customer confusion are common outcomes.
Another insider flagged deeper issues: banks that sell investment products often run insurance companies too, creating conflicts of interest that confuse consumers at the point of sale.
Governance Shake-Up on the Cards
The proposed Insurance Laws (Amendment) Bill, 2025 could intensify the reset.
- The regulator may bar common directorships between banks and insurers.
- This could disrupt board composition and governance structures.
While the intent is to reduce conflicts, insurers argue a blanket ban may be impractical. The industry prefers enhanced disclosures and conflict-management frameworks instead.
The Numbers Worry the Regulator
Data from Insurance Regulatory and Development Authority of India highlights why action is imminent.
- FY25 gross written premium from mixed products: INR 6.25 Lakh Cr.
- Premium from pure protection products: just INR 17,950 Cr.
That’s over 97% of the market tilted towards non-pure insurance—an imbalance IRDAI views as unhealthy.
In its FY25 annual report, IRDAI noted that unfair business practice-related grievances rose to 22.14%, up from 19.33% a year earlier.
Consumers Pay the Price
Long-term policies often demand 20–30 year commitments, yet many lapse early.
Anecdotal evidence suggests over 50% of policyholders stop paying premiums within five years. When policies lapse, a significant portion of the money stays with insurers, compounding distrust.
As one user put it bluntly, such products resemble low-return investment systems masquerading as life insurance.
Policy Push Meets Market Reality
The debate comes a day after Finance Minister Nirmala Sitharaman tabled the Economic Survey 2024–26, outlining the Centre’s vision of “Insurance for All by 2047”.
IRDAI’s reforms aim to empower policyholders. Whether insurers’ recalibration aligns execution with that ambition remains the real test.
TL;DR
As IRDAI tightens norms to curb misselling, insurers face pressure to separate insurance from investment. Acko has committed to pure life insurance, but the shift could dent industry revenues even as it promises better protection and transparency for consumers.
AI Summary
- IRDAI pushing insurers to curb life insurance misselling
- Acko commits to pure protection, drops investment-linked insurance
- Mixed products dominate over 97% of the market
- Proposed rules may reshape insurer-bank board structures
- Reforms tied to “Insurance for All by 2047” vision
