A seller-beware market for financial products

Instead of the current reactive strategy to address problems in the space, India needs to fundamentally fix the problem of toxic financial products and mis-selling

- Monika Halan

The Financial Stability Report 2025 of the Reserve Bank of India has some damning evidence on the Indian insurance industry. Its data shows that commissions as a proportion of costs have been rising for both life and non-life for the private insurers. When matched with the growing evidence of mis-selling in life insurance and the unwillingness of health insurance to pay individual claims, it points to a broken marketplace. While the problem is acute in insurance, there are worries of unsuitable products being sold in other parts of the retail market as well. The quick fix of banning a product or a distribution channel is not a long-term solution. India needs to be the first country to transition from a buyer-beware to a seller-beware market in retail finance. Only then will the household be a partner and not a victim of the financial sector.

Caveat emptor, or buyer beware, is the default rule in markets for goods and services. This places the burden on buyers to inspect goods and services ahead of the purchase. Consumer protections are built in with regulations and disclosure. For example, a loaf of bread will have the ingredients and date of expiry printed on the packaging as the main disclosure, and the food regulator will certify that it is fit to be eaten. In such a market, where sales commissions are built into the price of the product, there is little conflict of interest at scale.

However, the buyer-beware premise breaks down completely in retail finance products and services. There are five reasons for this.