Targets, Trips, and Trust: Why Insurance Distribution Needs a Reset
A family buys a policy and files it away until a hospital bill arrives. IRDAI’s draft distribution reforms ask whether that gap between buying and using insurance can close.
Shilpa Arora, Co-founder and COO of Insurance Samadhan.
By: Shilpa Arora
Imagine a family sitting across the dining table with an insurance policy. Someone they trust has recommended it. The premium seems manageable and the benefits sound reassuring. The document goes into a cupboard. Life moves on.
Months later, a hospital admission brings that document back to the table. This time, the questions are different. What is covered? Why is part of the bill being deducted? Who will help with the paperwork?
That distance between buying a policy and understanding its usefulness is what came to my mind when I read IRDAI’s September 23 consultation paper on recalibrating the economics of insurance distribution. Its proposals are still under consultation. But the direction, alongside the regulator’s wider work on awareness and digital infrastructure, gives me reason to be hopeful.
Having worked in insurance, I have rarely seen people sit down and decide what protection their family needs before approaching someone to buy it. More often, the conversation begins with a familiar advisor, a bank employee or someone in their circle who understands the importance of insurance.
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A good advisor can help a family understand insurance and make a decision they postponed. That contribution matters.
The difficulty begins when the advisor’s target starts influencing the recommendation more than the family’s circumstances.
For years, discussions around mis-selling have returned to commissions and incentives. Sales contests, gifts and foreign trips linked to targets can create pressure that travels down to the customer. The customer hears about the product’s advantages. They may have little visibility into the commercial reasons it is being recommended.
The distribution paper addresses this by proposing commission ceilings that vary by product and sales channel. It seeks to reduce excessive payouts and bring discipline to distribution costs. These are proposals, and the final rules may differ.
For individual health insurance, the proposed base ceilings for distribution entities, such as brokers and banks, are 15% of premium on first-time sales and 5% on renewals or porting. For insurer-appointed agents and associates, the corresponding limits are 20% and 10%. Additional allowances are proposed for specified underserved locations.
The distinction matters. Porting should happen because another policy better serves the customer. Paying it like a renewal could reduce the temptation to move an existing customer simply to earn a fresh-sale commission.
Importantly, the proposed limits would include rewards, gifts, trips and other direct or indirect remuneration. A lower headline commission means little if the same incentive returns under another name.
Life insurance proposals also seek to reduce dependence on large upfront payouts and encourage continuity. For individual savings policies with premium-paying terms of ten years or more, the proposed first-year ceilings are 20% for distribution entities and 25% for agents.
For our family, the test is whether these changes improve the recommendation they receive and the value of their premium. Lower distribution costs could help, but an automatic reduction in premiums should not be assumed.
An advisor still deserves fair payment for assessing needs, explaining exclusions and helping with claims. Commission reform must leave room for that work. A cheaper sale followed by unavailable service would be a poor outcome.
We have heard the industry saying, “Insurance is sold, not bought,” for so long that it can sound like a permanent truth. Changing that habit would be an achievement. It would mean a person asking whether their family has enough protection before a salesperson asks whether they would like another policy.
But that change will need patient work. A comparison screen cannot explain everything to someone who does not yet know which questions to ask.
This is where the Policyholders’ Education and Protection Fund matters. Its regulations were notified in July, separately from the distribution consultation. They provide for education and awareness, alongside support for grievance redressal and technology-based policyholder services.
I would like that awareness effort to reach the dining table in our story. Can the family explain a waiting period? Do they understand that a room-rent limit may affect their claim? Do they know whom to approach when they disagree with an insurer? Those are useful measures of whether awareness is working.
The proposed Public Insurance Registry, or PIR, could help with another part of the problem: scattered information. The regulator envisages a common information layer supporting activities such as comparison, suitability assessment, servicing and claims, with appropriate safeguards.
Think of the same family trying to piece together an employer’s health cover, an older personal policy and a life policy whose details only one member knows. A clearer view of those arrangements could make it easier to identify gaps and seek advice. It could also help families manage their policies before an emergency forces them to search for documents.
Accurate records, clear information and consent safeguards will be essential. People must know who can access their information and why.
A family dealing with illness or bereavement should be able to reach someone who knows their policy and can explain the next step. A document request needs an explanation. A deduction needs a clear reason. An eligible claim needs timely attention.
This is where the emphasis on service alongside sales becomes important. I would like an advisor’s success to include whether customers understand their cover, can sustain their premiums and receive dependable assistance when they claim. These outcomes deserve attention throughout the relationship.
A fairly handled claim also builds confidence beyond one household. Families talk about their experiences. That can encourage someone else to consider insurance.
Digital systems must also work for people who need personal assistance. Convenience should extend to customers who cannot navigate a portal independently.
Commission reform, awareness and digital access must work together. A well-chosen policy without claims support can still leave a family anxious.
I keep returning to that family at the dining table. Ideally, they should understand their protection when they buy it, know where to find it and know who will help them use it.
If these reforms bring that experience closer, we will have made real progress towards putting the policyholder at the centre of insurance.
The author is Shilpa Arora, Co-founder and COO of Insurance Samadhan.
Editorial Disclaimer:This is a contributed article. The views and opinions expressed are those of the author(s) and do not necessarily reflect the position of The Insurance Reporter, which does not endorse or take responsibility for the accuracy of claims made herein. Readers should conduct their own due diligence before making any financial or insurance-related decisions.
