Of misselling and insurance for all by '47

How to make bancassurance a genuine vehicle for financial security rather than a source of grievance and distrust

- TAMAL BANDYOPADHYAY

Recent steps by the finance ministry, the Reserve Bank of India (RBI), and the Insurance Regulatory and Development Authority of India (Irdai) are charting a path for curbing misselling in bancassurance. The focus is on plugging supervisory gaps, making banks accountable for every insurance policy sold through their counters, and fine-tuning audit and suitability checks as well as the incentive structure for bank employees.

Suitability check is a process of assessing whether a recommended investment product or service matches a customer's financial situation, investment objectives, and risk tolerance. It’s an ethical standard designed to protect investors from being sold unsuitable, risky, or unnecessarily complex products.

Both the RBI and the Irdai have repeatedly emphasised the need for banks and insurance companies to strengthen their governance and risk-management framework for bancassurance activities, especially after complaints of misselling and unfair business practice rose to over 26,000 in FY25, with mis selling accounting for around one-fifth of life insurance grievances.

Bancassurance — a relationship between a bank and an insurance company aimed at offering insurance products to a bank’s customers — has not been actively monitored either by the banking regulator or the markets regulator. The RBI doesn’t come into the picture as the products are covered by Irdai, and Irdai doesn’t act aggressively as they are sold from the bank’s courtyard.

The finance minister recently hinted that henceforth, the RBI will deal with any insurance product sold from the bancassurance platform. She said mis-selling is not a grey area but an offence, and that customers should not be made to run between two regulators when products are sold through bank branches.