The Lift Line
The mis-selling shows up loudest at bank counters, but the commission redesign lands on the individual agent, which is a diagnosis error the reform then hardens into policy.
Why This Editorial Matters for Your Exam
This is a compact GS3 case with everything a Mains answer needs: an incentive-design problem, a regulator (IRDAI), fresh sector data (life penetration 2.7 per cent of GDP, density USD 97, 26,667 unfair-practice complaints), a distribution-channel breakdown that changes the answer, and a financial-inclusion consequence. Insurance-sector reform recurs in Mains, and this piece gives you a defensible non-obvious position.
GS Paper 3: Indian economy and issues relating to mobilisation of resources; financial inclusion; regulation of financial sector.
| Concept | Meaning | Why it is testable |
|---|---|---|
| IRDAI | Insurance Regulatory and Development Authority of India, statutory body under the IRDA Act, 1999, HQ Hyderabad | The regulator whose proposal the editorial critiques |
| Bancassurance | Sale of insurance products through banks acting as corporate agents of insurers | Now about 33 per cent of individual new-business premium, up from a marginal share two decades ago |
| Persistency | Proportion of policies still in force after a given period (13th month, 61st month) | The behavioural target of levelised commissions |
Background and Context
The regulator’s two proposals. IRDAI is considering (a) spreading the commission across the life of the policy rather than front-loading it, and (b) tying pay to the agent’s “effort” in sourcing and serving customers.
The distribution mix. Individual agents account for about 51 per cent of individual new-business premium; bancassurance accounts for about 33 per cent; direct, online and broker channels write the rest. Two decades ago, agents wrote nearly 90 per cent of the business. LIC remains agent-heavy; most private insurers lean on their bank partners.
The complaint data. In 2024-25, life insurers sold about 2.70 crore new individual policies (LIC 1.78 crore, private 92.5 lakh). Complaints under unfair business practices rose to 26,667, from 23,335 a year earlier, up roughly 14 per cent. Total life complaints were essentially flat, from 1,20,726 to 1,20,429. Mis-selling therefore grew from about 19 per cent to 22 per cent of the complaint pie, or about 1 in 1,000 new policies in raw incidence.
Where the complaints originate. Much of the loudest mis-selling has come from bank counters, policies dressed up as fixed deposits or quietly bundled into loans.
The inclusion backdrop. Life insurance penetration is 2.7 per cent of GDP in FY 2024-25; overall insurance penetration is 3.7 per cent; density is USD 97 (per IRDAI Annual Report 2024-25). The last-mile network is roughly 26 lakh individual agents, most working in small towns and villages.
The Analysis
1. The pay redesign misses its target channel. If most unfair-business-practice complaints come from bank counters where a policy is presented as a fixed deposit or attached to a loan, then the effective lever is the bank counter’s incentive and disclosure regime, not the individual agent’s commission structure. A regulator that changes the pay of the wrong channel is trading a visible reform for an invisible one.
2. Levelised commissions are right in principle, wrong as the sole lever. Spreading commission across policy life aligns the seller with persistency, which is the correct behavioural objective. But the individual agent’s upfront commission is working capital that funds the fieldwork of reaching an uninsured household. If levelisation is not accompanied by financing arrangements or hybrid front-plus-trail structures, it thins out the last-mile network before it fixes the boardroom-level distortion.
3. Effort-linked pay is a governance risk in itself. Pay that turns on discretionary assessment of “effort” invites disputes, arbitrariness and, eventually, litigation. Regulation is most robust when its measurements are unambiguous (premium collected, policies persistent, complaints filed) and weakest when they are subjective. The proposal moves in the wrong direction.
4. Financial inclusion is a channel problem, not a product problem. Life insurance penetration is stuck at 2.7 per cent because the uninsured segment is served by fieldwork, not by screens. Cutting the working capital of the network that does that fieldwork is a straightforward inclusion cost, and it does not appear in the IRDAI dashboard that tracks complaints.
5. The correct architecture is point-of-sale and channel-neutral. A mandatory suitability analysis before any sale, fewer and simpler products, recorded sales conversations, larger persistency rewards for keeping policies alive, and enforceable penalties applied equally to bank counters and individual agents will hit mis-selling where it is generated. Commission redesign becomes a complement in that architecture, not a substitute.
Data and Institutions Vault
Prelims-grade facts:
The regulator:
- IRDAI: Insurance Regulatory and Development Authority of India, statutory body under the IRDA Act, 1999, headquartered at Hyderabad.
- Established 1999 following the Malhotra Committee (1993) recommendations.
- The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 was enacted in 2025: passed by Parliament on 17 December 2025, and commenced on 5 February 2026. It raises the FDI cap in Indian insurance companies from 74 per cent to 100 per cent under the automatic route and strengthens IRDAI powers, and introduces one-time licensing for intermediaries.
- The composite licence, long sought by the industry, was dropped from the final Bill and is not part of the Act.
The market in FY 2024-25 (IRDAI Annual Report 2024-25):
- Insurance penetration (overall): 3.7 per cent of GDP (unchanged from 3.7 per cent).
- Life insurance penetration: 2.7 per cent (down from 2.8 per cent).
- Non-life insurance penetration: 1 per cent (unchanged).
- Insurance density: USD 97 (up from USD 95 in FY 2023-24).
- New individual policies sold by life insurers: 2.70 crore (LIC 1.78 crore, private insurers 92.5 lakh).
The distribution mix (individual new-business premium):
- Individual agents: about 51 per cent.
- Bancassurance: about 33 per cent.
- Direct, online and broker channels: the balance.
- Two decades ago: individual agents wrote about 90 per cent.
- Individual agent workforce: about 26 lakh.
The complaint data:
- Unfair business practice complaints, life: 26,667 in 2024-25 (from 23,335 in 2023-24), up about 14 per cent.
- Total life complaints: about 1,20,429 in 2024-25 (about 1,20,726 in 2023-24), essentially flat.
- Mis-selling share of complaint pie: from about 19 per cent to about 22 per cent.
- Raw incidence: about 1 unfair-practice complaint per 1,000 new policies.
The reform corridor:
- IRDAI Expenses of Management (EoM) Regulations, 2023, cap distribution and other management expenses.
- Bima Sugam (unified insurance marketplace), Bima Vistaar (composite low-ticket product), Bima Vahak (women-led local network): proposed 2023-24.
- LIC IPO listed May 2022 following the 2021 LIC Act amendments.
⚠️ Watch the trap: Insurance penetration and insurance density are different indicators. Penetration is premium as a per cent of GDP; density is premium per capita in USD. A single question that pairs “penetration” with “USD” is testing this confusion.
The Debate
FOR (rewrite the commission structure): Upfront commissions structurally bias sellers toward high-commission, unsuitable products. Levelising pay across policy life aligns the seller with persistency, which is the correct measure of customer benefit. Any transitional cost to agents is worth the systemic gain in product design and retention.
AGAINST (leave the working capital alone): The complaint data concentrates in bank counters, not individual agents, so commission redesign is treating a symptom in the wrong place. Cutting the upfront cash flow of the field agent thins out the network that reaches the uninsured and does not address the disclosure failures at bank branches.
Balanced verdict: Both propositions are partly right. Persistency-aligned pay is a defensible principle; the mis-diagnosis is the assumption that pay redesign alone reaches the actual origin of mis-selling. The proportionate reform pairs a levelised (or hybrid) commission with channel-neutral point-of-sale rules that bind bank counters and agents equally: mandatory suitability, recorded conversations, simpler products, enforceable penalties.
How to Think About This
When a regulator proposes a broad structural change in response to a narrow, channel-specific problem, ask three questions. First, where do the complaints actually originate (data by channel)? Second, does the proposed lever reach that channel or a different one (mechanism check)? Third, what is the collateral cost on constituencies who are not the target (distributional consequence)? An answer built on those three questions travels well beyond insurance to any regulated network, telecom, banking, health.
Diagram-in-Words
Life insurance mis-selling in India is concentrated in specific distribution channels, but proposed regulatory reforms cut across the whole intermediary system. Examine the incentive design, distribution structure and financial-inclusion trade-offs involved, and suggest a proportionate reform path. (250 words)
India’s life insurance industry has a channel-specific conduct problem: complaints under unfair business practices rose about 14 per cent to 26,667 in 2024-25, the loudest cases arising from bank counters where policies are dressed up as fixed deposits or bundled into loans. The regulator’s response, redesigning agent commissions, targets a different channel from the one generating the complaints.
The distribution architecture explains why this matters. Individual agents write about 51 per cent of individual new-business premium; banks (bancassurance) about 33 per cent; the remainder comes from direct, online and broker channels.
Two decades ago agents wrote nearly 90 per cent of the business, so the shift into bank counters has been dramatic and it maps onto the geography of the complaints. On the numbers, life insurers sold 2.70 crore new individual policies in 2024-25 (LIC 1.78 crore, private insurers 92.5 lakh); overall life complaints stayed near 1.20 lakh, but the unfair-business-practice slice grew from 23,335 to 26,667, roughly 19 to 22 per cent of the total.
Set 26,667 against 2.70 crore, and the raw incidence is about 1 in 1,000, low in aggregate but disproportionately concentrated. The two proposals in play are spreading commissions across a policy’s lifetime rather than front-loading them, and tying pay to seller “effort”.
Levelised commissions align the seller with persistency, which is the correct principle, but as the sole lever they weaken working capital for the individual agent whose upfront pay funds bus fares and repeat visits in small towns. India’s life-insurance penetration is stuck at 2.7 per cent of GDP in FY 2024-25 with overall penetration at 3.7 per cent, and the roughly 26 lakh individual agents remain the primary rail into the uninsured segment.
The effort-linked proposal is worse: pay contingent on discretionary judgement invites disputes and arbitrariness without touching the counters where mis-selling is generated.
The proportionate architecture is channel-neutral point-of-sale regulation: mandatory suitability analysis, simpler product menus, recorded sales conversations, larger persistency rewards, and enforceable penalties applied identically to bank counters and individual agents. Redesigning commissions can complement that architecture, not substitute for it, and it must be calibrated so the last-mile agent network is not the collateral casualty of a reform aimed elsewhere.
Interview Angle
"When a regulator sees rising complaints in one distribution channel and rewrites the pay structure of a different one, is that a failure of diagnosis, a failure of political economy, or the only lever the regulator can actually pull?"
Takeaway Box
Lift line: The mis-selling shows up loudest at bank counters, but the commission redesign lands on the individual agent, which is a diagnosis error the reform then hardens into policy.
Prelims hooks: IRDAI under IRDA Act 1999, HQ Hyderabad; insurance penetration FY 2024-25 total 3.7 per cent of GDP, life 2.7 per cent, non-life 1 per cent; density USD 97; new individual policies 2.70 crore (LIC 1.78 crore, private 92.5 lakh); unfair-practice complaints 26,667 (up from 23,335, +14 per cent); total life complaints about 1.20 lakh (flat); distribution mix: agents 51 per cent, bancassurance 33 per cent; individual agent workforce about 26 lakh; IRDAI Expenses of Management Regulations, 2023; Bima Sugam / Vistar / Vahak (2023-24 proposals); LIC IPO May 2022.
Mains keywords: incentive alignment, channel-specific regulation, persistency, bancassurance, mis-selling, financial inclusion, suitability standard, point-of-sale rules.
Ethics and interview angle: When a regulator sees rising complaints in one distribution channel and rewrites the pay structure of a different one, is that a failure of diagnosis, a failure of political economy, or the only lever the regulator can actually pull?
PYQ linkage: Connects to past UPSC Mains questions on regulation of financial markets, financial inclusion and the role of intermediaries.
Sources: Economic Times
The editorial argues that IRDAI’s proposals to spread agent commissions across a policy’s lifetime and tie pay to “effort” target the wrong end of the mis-selling problem: complaints under unfair business practices rose 14 per cent to 26,667 in 2024-25 (about 1 per 1,000 new policies) and the loudest cases come from bank counters, but the pay redesign will land hardest on individual agents who still write 51 per cent of new business and reach the uninsured in small towns.
- The distribution mix has shifted decisively: individual agents wrote nearly 90 per cent of business two decades ago and now write about 51 per cent, banks (bancassurance) write about 33 per cent, and direct, online and broker channels write the rest, with LIC still agent-heavy and most private insurers bank-heavy.
- The conduct data confirms concentrated risk: life insurers sold 2.70 crore new individual policies in 2024-25 (LIC 1.78 crore, private 92.5 lakh); total life complaints were flat at about 1.20 lakh, but unfair-business-practice complaints rose from 23,335 to 26,667, taking mis-selling from about 19 per cent to 22 per cent of the pie.
- Financial-inclusion cost of a blunt commission cut is real: life insurance penetration is stuck at 2.7 per cent of GDP in FY 2024-25 (overall insurance penetration 3.7 per cent, density USD 97), and the last-mile agent network of roughly 26 lakh individual agents does the actual work of reaching uninsured Indians.
- The effort-linked commission idea is regulatorily fragile: pay that turns on subjective judgement of “effort” invites disputes, arbitrariness and litigation, and does not target the point where mis-selling actually happens.
A counter-view holds that upfront commissions structurally bias sellers toward high-commission, unsuitable products; that spreading pay across policy life aligns the seller with policy persistency and the customer’s long-term interest; and that any transitional cost to agents is worth the systemic gain in product design and retention.
Fix mis-selling at the point of sale with channel-neutral rules: clearer disclosures, fewer and simpler products, a mandatory suitability or needs analysis before any sale, larger persistency rewards to keep policies alive, recorded sales conversations, and enforceable penalties applied equally to bank counters and individual agents.
Cite this page: Curb Mis-selling, Not Agents: Insurance Reform Needs a Scalpel, Not a Hammer — Ujiyari.com | Free UPSC & State PCS Editorial Analysis
