Mis-selling in insurance sector significant concern: Irdai

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

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

Thus, the share of UFBP grievances to total grievances has increased to 22.14 per cent in FY25 compared to 19.33 per cent in the previous fiscal.

Mis-selling involves the sale of insurance products to consumers without proper disclosure of terms, conditions or suitability.

"To prevent or reduce mis-selling, insurers have been advised to implement strategies, such as assessing product suitability, implementing distribution channel-specific controls and developing a plan to address mis-selling grievances, including carrying out a root cause analysis on a periodic basis," Insurance Regulatory and Development Authority of India (Irdai) said in its annual report 2024-25.

The Finance Ministry has repeatedly cautioned banks and insurance companies against the mis-selling of insurance policies to customers, emphasising the importance of upholding corporate governance best practices.

Mis-selling often leads to higher premiums for customers, and as a result, policyholders don't renew their policy, resulting in a rise in lapse cases.

About insurance penetration, the report said it remained static at 3.7 per cent in FY25. This is much below the world's average of 7.3 per cent.

The insurance penetration for the life insurance industry declined from 2.8 per cent in the previous year to 2.7 per cent during 2024-25. The penetration with respect to the non-life insurance industry remained the same at 1 per cent during 2024-25 compared to 2023-24, it said.

In 2024-25, the insurance density in India showed a modest rise, increasing from USD 95 in 2023-24 to USD 97 in 2024-25. Specifically, life insurance density increased from USD 70 to USD 72, while non-life insurance density remained stable at USD 25.

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

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

While insurance penetration is measured as the percentage of insurance premiums to GDP, insurance density is calculated as the ratio of premiums to population (per capita premium). PTI DP BAL BAL