Mis-selling in insurance sector significant concern: Irdai

New Delhi, Jan 4 (PTI) Mis-selling is a major concern in the insurance industry and insurers should conduct a root cause analysis to identify the underlying causes, regulator Irdai said in its latest annual report.

While the total number of complaints registered against life insurers remained almost the same at 1,20,429 in 2024-25 as against 1,20,726 in 2023-24, the total number of complaints registered under UFBP (Unfair Business Practices) increased from 23,335 in 2023-24 to 26,667 in 2024-25. according to the report.

Thus, the share of UFBP complaints in total complaints increased from 19.33 percent in the previous fiscal to 22.14 percent in FY25.

Misselling involves selling insurance products to consumers without properly disclosing their terms, conditions, or eligibility.

“To prevent or reduce mis-selling, insurance companies have been advised to implement strategies such as assessing product suitability, implementing distribution channel-specific controls and developing a plan to address mis-selling complaints, including conducting root cause analysis periodically,” the Insurance Regulatory and Development Authority of India (Irdai) said in its annual report for 2024-25. he said.

The Ministry of Finance has repeatedly warned banks and insurance companies against mis-selling insurance policies to customers, stressing the importance of promoting best practices in corporate governance.

Mis-selling often leads to higher premiums for customers and, as a result, policyholders do not renew their policies, leading to an increase in lapsed cases.

Regarding insurance penetration, the report stated that it remained stable at 3.7 per cent in FY25. This rate is well below the world average of 7.3 percent.

Insurance penetration in the life insurance sector decreased to 2.7 percent in 2024-25 from 2.8 percent in the previous year. It was stated that the penetration of non-life insurance sector remained the same at 1 percent in 2024-25 compared to 2023-24.

In 2024-25, insurance density in India increased moderately from US$ 95 in 2023-24 to US$ 97 in 2024-25. In particular, life insurance density increased from US$70 to US$72, while non-life insurance density remained stable at US$25.

This upward trend in insurance density has been consistent since 2016-17, the report said.

Insurance penetration and density are two metrics frequently used to assess the level of development of the insurance sector in a country.

Insurance penetration is measured as the ratio of insurance premiums to GDP, while insurance density is calculated as the ratio of premiums to population (premiums per capita).