IRDAI Puts Names and Clawbacks on Mis-Sold Policies

IRDAI has proposed clawing commissions back from mis-sold policies and tagging every sale to a named salesperson, in a consultation paper issued on 23 September 2026. The draft, titled Recalibrating Economics of Insurance Distribution, is open for comments until 25 October 2026.

The money story is a clawback. The person who will feel it is the bank clerk, the point-of-sale person and the agent whose identity, bonus and public file the paper wants sitting on the policy.

A Name on Every Policy

IRDAI wants the functional identity of the specified person, salesperson or Point of Sales Person at an insurance distribution entity, and of an agent or associate of an insurer, tagged to the policy that person sold. Mis-selling incidents would then sit in the public domain as part of that person’s performance record.

Chairman Ajay Seth had already said the gap in July 2026, on the sidelines of an Insurance Brokers Association of India meeting. In bancassurance and broker-led sales, insurers typically see the bank or the broker, not the individual who sat with the customer. “At present, such a database does not exist,” Seth said.

It is proposed to tag functional identity of specified persons or salesperson or PoSP of IDE, or of an agent or associate of an insurer with the policy sold by the concerned person, and placing the information on incidences of mis-selling in public domain as a part of performance of the concerned person.

Insurance Regulatory and Development Authority of India, Recalibrating Economics of Insurance Distribution, 23 September 2026

The paper says that public file would do four jobs: take money back through the commission structure, fix accountability, warn future recruiters, and let a buyer check a seller’s mis-selling history before signing. The pipe for that file is the Public Insurance Registry as digital public infrastructure, a separate 1 September 2026 consultation that remains open until 30 September 2026.

A recruiter who can search a seller’s complaint history will treat volume producers differently from people who keep policies in force. Buyers who can see that history before a loan desk closes the sale get a fact they do not have now.

The Commission Comes Back After a Bad Sale

The paper states, in one line, that mis-selling incidents should also lead to commission clawback by insurers. That is the cash follow-through of the name tag. Pay that already left the insurer for a sale later judged a mis-sell would have to come back.

A second clawback sits on cancelled policies. “Proper claw back arrangements can be put in place for recovering excess payments for cases where policies are cancelled,” IRDAI said. Any delay would attract interest, charged to operating expenses, so the recovery is not a free float for the distributor.

The draft also widens what counts as commission. Direct and indirect pay, cash and non-cash, would sit inside the same regulatory definition, which is how a foreign trip or a milestone bonus becomes something an insurer can later claw. Distributors would still be paid for quality of sale and servicing, and for persistency, rather than for stuffing first-year premium.

Premium would have to move from the customer’s own bank account, UPI or card, not through a third party. IRDAI said the absence of that mandate leaves room for fraud and mis-selling. Claim money would move the other way, into a verified account of the policyholder.

125% Growth in Pay, 28% in Premium

The name-and-clawback regime is the bill for a three-year experiment. IRDAI removed product-wise commission caps in 2023 and folded agent pay into an overall expenses-of-management ceiling, with each insurer’s board setting the grid. The 15 May 2024 master circular made that board policy the working rule.

THE COST CYCLE SINCE 2023

1. 1 April 2023: Payment of Commission Regulations take effect and fold product caps into overall expense limits.
2. 15 May 2024: Master circular tells each insurer’s board to fix the commission structure inside that ceiling.
3. June 2026: Reserve Bank directions on third-party product sales restrict employee incentives and compulsory bundling at banks and NBFCs.
4. 1 September 2026: IRDAI floats the Public Insurance Registry paper, with comments due 30 September 2026.
5. 23 September 2026: Distribution paper proposes hard commission caps, identity tags and clawbacks, with comments due 25 October 2026.

IRDAI now says the 2023 and 2024 design relied heavily on board-approved policy, and that board approval was often a formality. The inability to keep costs down under the flexible regime, the paper argues, makes a case for hard caps again, with tighter oversight.

The Reserve Bank’s June 2026 Financial Stability Report had already shown that private life commission ratios nearly doubled from about 4.5% in 2021-22 to 9.1% in 2025-26, while operating expense ratios stayed flatter. That rise outpaced private premium growth and, the central bank said, raised the risk of acquisition-cost-driven mis-selling.

WHERE EXPENSES WENT AFTER THE CAPS CAME OFF

The corporate-agent sample covers about 92% of premium placed through that channel. Effective distributor pay is now about 27% of first-year premium, with rewards and incentives adding another 30% to 60% over base commission. IRDAI said base commission alone is an incomplete measure of what distribution actually costs.

Life 61-month persistency is 48%, so more than half of policyholders stop before five years even though pay is heavily loaded on the first year. The online channel’s 61-month persistency is 71%. General insurance grievances on the Bima Bharosa portal rose from 78,347 in FY23 to 1,37,361 in FY25, with nearly 69% of those complaints about claims. In FY26, 63% of Bima Bharosa complaints that were disposed of were settled in favour of policyholders.

Bank Counters Lose the Gift and Trip Bonus

The paper is blunt about where mis-selling shows up most often. “Mis-selling of insurance products is a concern across financial services. It is more prevalent in banks and other banking entities, but is not uncommon in other distribution channels,” it says, and it writes the new insurance rules as a complement to the Reserve Bank’s June 2026 directions on responsible business conduct.

Those RBI directions already tell a bank that no incentive should be received, directly or indirectly, by its employees from a third-party product provider, and that a bank should not force-bundle those products with its own. IRDAI now proposes a matching ban on volume-linked or reward-linked incentives for bank and NBFC staff who sell insurance.

The examples in the paper are not abstract. Foreign and domestic trips, luxury gifts, milestone bonuses and contest rewards are, it says, common across the channel and create a direct conflict with customer suitability. Once those sit inside the definition of commission, they are also in range of a clawback.

Compulsory bundling of insurance with loans would be prohibited for banks and NBFCs registered as distribution entities. A package that actually cuts the customer’s cost could still be offered, but the borrower would have to see the interest rate with and without the cover, could not be forced to buy from that lender, and would pay the premium separately rather than out of the loan. For some group health products sold through banks, the commission the bank earns would have to be disclosed.

About 93% of the NBFC corporate-agency book is single-premium Group Credit Life and related loan-linked cover sold at origination, where the customer has little room to compare. Effective payouts on Group Credit Life have risen to around 45%. That is the desk the trip-and-gift ban is aimed at.

What the Draft Treats as Mis-Selling

IRDAI lists 12 selling practices that would attract disincentives or regulatory action. A documented needs-and-suitability analysis would be mandatory for life sales above a ticket size the regulator would set, with an audit trail. A customer’s signature would not, by itself, wash the insurer or the intermediary of an unsuitable sale. If the buyer picks a product other than the one recommended, that choice would have to be written down.

THE 12 PRACTICES NAMED IN THE DRAFT

• Regular sold as single: Selling a regular-premium product as if it were a single-premium policy.
• Silence on surrender: Selling regular-premium life cover without explaining what happens if premiums stop, including the low surrender value.
• Wrong age or dependants: Selling life insurance, including term cover, to people who are not of working age or who have no dependants.
• No steady income: Selling regular-premium products to customers without income that can support the premiums.
• ULIPs to the wrong buyer: Selling unit-linked plans to risk-averse or older customers without explaining mortality charges, capital risk and uncertain returns.
• False assured returns: Selling participating or ULIP products with a false promise of assured returns.
• Deposit lookalikes: Selling non-participating life products as if they were bank deposits when returns are lower or similar.
• High-return packaging: Presenting insurance as a fixed-income deposit or a high-return investment, a pattern the paper ties to bank-led sales of endowment and savings plans.
• Cover on a non-earner: Selling term insurance to cover a dependent or non-earning relative.
• Churn: Inducing a customer to cancel an existing policy and buy a new one on a misleading promise of better returns.
• Illiquid single premium: Selling high-value single-premium products with low liquidity and thin insurance cover.
• Inheritance pitch: Selling life insurance specifically for inheritance planning.

Unfair business practices have been a leading category of customer complaints, the paper says, and mis-selling has been a major cause of premature surrender of life policies. Most social media posts about insurance, it adds, are about mis-selling. The list is how IRDAI wants that complaint to map onto a named person and a recoverable commission.

Agents Keep More of First-Year Pay

Hard caps would return, differentiated by product, channel and effort. For life cover, first-year commission for agents is proposed at 6.25% to 25% of premium, against 5% to 20% for other intermediaries including banks, brokers and web aggregators. Group Credit Life sold by a lending distributor would sit at 2%, against effective payouts around 45% now. Individual savings sold as single premium would be capped at 1% for distribution entities and 2% for agents.

The grid favours the tied agent over the open bank branch. Non-agency channels are about 50% of life business today, and 65% to 70% of that slice is banks, a private life chief executive said. “The 30% others’ share could completely evaporate,” the same executive said, and warned of contraction in life business over the next two to three years if that distribution walks away.

Bancassurance takes about 45% of private life premium and an average 10% commission on total premium, including renewals. In general insurance the same channel takes about 5% of premium and 26% commission, while agency and brokers together generate about 63% of premium at 17% to 18%. “The bancassurance channel therefore emerged as one of the costliest channels for insurance distribution,” IRDAI said.

Insurers that still run board-approved first-year commission grids written for the 2024 flexibility era would have to rebuild those grids around the new ceilings. Life expenses of management would move to a company-level cap of 15% of premium in two years and 12.5% in five years. General insurers would move to 20% of gross direct premium income over five years.

This proposal pushes the sector in uncharted waters by almost cutting the oxygen (commission) supply to this ‘push sector’.

Emkay Research, note on the 23 September 2026 consultation

Jefferies said a 10% cut in new-business commission rates would translate to a 10% to 12% earnings fall for distributors such as PB Fintech and Turtlemint, and treated the package as broadly neutral for insurers and negative for those platforms. Listed distributors sold off after the paper landed. The market priced take rates. It did not price the public file on the person who sold the policy.

The 25 October Comment Window

This is not a notified regulation. IRDAI has asked for comments on the distribution paper until 25 October 2026, by web form, Excel upload or email, one mode only. The Public Insurance Registry paper closes earlier, on 30 September 2026. Until those files are turned into regulations, commissions still follow the 2024 board-policy regime.

WHAT WE KNOW

• The draft date: The distribution paper was issued on 23 September 2026 and names clawback, identity tagging and a volume-incentive ban as proposed measures.
• The comment close: Stakeholder comments on that paper are due on 25 October 2026.
• The cost record: In the corporate-agent sample, distributor pay rose 125% from FY23 to FY25 while new-business premium rose 28%.

WHAT IS UNCONFIRMED

• Final numbers: The 6.25% to 25% agent grid, the 2% credit-life cap and the 12.5% life expense endpoint can still move in the notified text.
• When tagging goes live: The Public Insurance Registry is a separate design paper, and no go-live date for seller-level public records is set in the distribution draft.
• Premiums at the till: The paper wants lower distribution cost to show up as better value for policyholders; it does not lock in a rupee cut in any product’s price.

Lower pay can thin the ranks of people willing to sit with a first-time buyer in a small town, which is the objection the draft still has to answer in the comment period. Online persistency at 71% against 48% for the book as a whole is the paper’s own evidence that a sale the buyer understands is the sale that stays. The named salesperson, and the commission that can be pulled back, is how IRDAI wants that evidence to travel from a consultation PDF to the bank counter.

Disclaimer: This article is news reporting and analysis of a public consultation paper. It is informational only and is not insurance, investment or legal advice, and it does not recommend buying, surrendering or replacing any policy. Readers who are deciding on a policy, a complaint or a distribution contract should consult a licensed insurance adviser, a company grievance officer or a qualified lawyer before acting. Figures, proposed caps and comment deadlines reflect the IRDAI paper and related official documents as retrieved for this report and may change when the regulator notifies final regulations.