IRDAI Gets More Powers to Prevent Mis-selling

The Insurance Regulatory and Development Authority of India (IRDAI) has been granted enhanced statutory powers to curb insurance mis-selling through provisions in the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, recently cleared by Parliament.

Key Objective of the Amendments

• Strengthen policyholder protection
• Improve transparency in commission disclosure
• Reduce conflicts of interest in insurance distribution, especially bancassurance
• Tackle widespread mis-selling of insurance products

Major Regulatory Powers Granted to IRDAI

1. Commission Disclosure & Regulation

• Clause 36 amends Section 40 of the Insurance Act, 1938
• Empowers IRDAI to:
  • Set limits on commissions/remuneration
  • Prescribe how commissions are paid
  • Mandate how commissions must be disclosed to policyholders
• Enables rules requiring insurers and intermediaries to explicitly disclose embedded commissions in insurance products

This marks a shift from opaque pricing to informed consumer choice.

2. Stronger Conflict-of-Interest Norms (Bancassurance Focus)

• Clause 25 substitutes Section 32A of the Insurance Act
• Statutory ban introduced:
  • Directors or officers of insurers cannot hold similar positions in:
    • Banking companies
    • Investment companies
• Significance:
  • Banks are the largest corporate agents for insurance
  • Prevents board-level influence that may push products of linked insurers

3. Tighter Control Over Intermediaries

• Applies to:
  • Insurance brokers
  • Web aggregators
  • Corporate agents
• Section 42D (amended) empowers IRDAI to:
  • Prescribe fit-and-proper criteria
  • Set eligibility conditions
  • Suspend or cancel registrations for regulatory violations
• New Section 40(2A):
  • Gives IRDAI wide rule-making authority over agents and intermediaries
  • Covers commissions, disclosures, and conflicts of interest