IRDAI’s New “Superpowers”: What the 2025 Insurance Law Amendments Mean for Mis‑selling, Commissions and Governance

India’s insurance sector has entered a decisive clean‑up phase. With the Sabka Bima, Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, the Insurance Regulatory and Development Authority of India (IRDAI) has been handed significantly sharper tools to tackle mis‑selling, opaque commissions and conflicts of interest in distribution channels like banks and corporate agents.

For insurers, intermediaries and professionals in the insurance ecosystem, these amendments are not just “one more compliance change”. They reshape how products will be sold, how distributors will be paid, and how accountability will be measured.

Why Mis‑selling Is Back in the Spotlight

Mis‑selling in India has long been a structural problem, especially in bancassurance:

• Customers being pushed long‑term insurance products when they simply needed a fixed deposit.
• Elderly or low‑income customers being sold complex ULIPs without understanding risk.
• Single‑premium policies being passed off as recurring savings products.
• Credit‑linked policies bundled with loans with little disclosure.

In recent months, Finance Minister Nirmala Sitharaman and RBI Governor Sanjay Malhotra have publicly voiced concern about rampant mis‑selling of insurance by banks, especially to vulnerable segments, prompting a coordinated regulatory response.

The 2025 Bill is the most concrete answer to that concern so far.

The Big Shift: IRDAI’s Expanded Powers Under the 2025 Bill

At the heart of the amendments lies greater, explicit authority for IRDAI to regulate three critical levers:

1. How much distributors are paid (commissions/remuneration).
2. How those payments are structured and made.
3. How transparently they are disclosed to policyholders.

These powers flow mainly from amendments to the Insurance Act, 1938, via the 2025 Bill.

Let’s break down the most important changes.

1. Commission Controls and Full Disclosure: Clause 36 / Section 40

Clause 36 of the Bill amends Section 40 of the Insurance Act, 1938, inserting a new sub‑section that substantially strengthens IRDAI’s hand on commissions.

What the law now allows IRDAI to do

New provisions allow the regulator, in the interest of policyholders, to set limits on commissions or remuneration paid to insurance agents and intermediaries.

Specifically, IRDAI can now:

• Set hard limits on commissions/remuneration for agents and intermediaries.
• Prescribe structures for how these payments are made (upfront vs. trail, linked to persistency, clawbacks, etc.).
• Mandate the exact manner of disclosure of commissions to customers – including potentially:
  • Commission as a percentage of premium.
  • Rupee amount per year or overall policy term.
  • Differentiation between acquisition cost and ongoing rewards.

This effectively opens the door to visible, standardised commission disclosure at the point of sale, making it possible for customers to see how much of what they pay is going towards distributor incentives rather than pure protection or savings benefits.

For an industry that has historically embedded commissions deep within opaque product structures, this is a fundamental change.

2. Cracking Down on Conflicts of Interest, Especially in Bancassurance

The Bill also sharpens the regulatory lens on conflicts of interest between insurers and distributors, with a particular focus on banks, which dominate corporate agency distribution.

Clause 25: Board‑level separations

Clause 25 substitutes Section 32A of the Insurance Act and explicitly bars:

A director or officer of an insurer from simultaneously holding a similar position in a banking company or an investment company.

Why this matters:

• Banks are the largest corporate agents for insurance products in India.
• Historically, overlapping directors or senior officers could create strong incentives for a bank to prioritise one “linked” insurer’s products over others – regardless of customer suitability.
• The new rule breaks this board‑level nexus, reducing the risk of skewed product pushes that serve corporate alignment rather than customer needs.

Beyond banks: Wider conflict‑management across intermediaries

For other intermediaries – brokers, web aggregators, corporate agents that are not banks – the Bill does not impose an outright statutory ban on cross‑positions. Instead, it arms IRDAI to shape behaviour through regulation:

• Section 42D amendments empower IRDAI to:
  • Define eligibility and fit‑and‑proper criteria for all intermediaries.
  • Suspend registrations for regulatory breaches, including mis‑selling or conflict‑of‑interest violations.
  • Introduce granular governance norms via regulations (e.g., related‑party transactions, disclosure of cross‑holdings, sales oversight structures).

The message is clear: governance can no longer be an afterthought in distribution. Poor conduct will carry real licensing‑level risk.

3. Onus on Insurers: Product Suitability, Need Analysis and Benefit Illustrations

The legal tightening around commissions and conflicts is complemented by operational requirements IRDAI has already been pushing and will now enforce with more bite.

Mandatory need analysis: Right‑fit over brute‑force sales

Insurers and distributors are being made explicitly responsible for product suitability:

• “Need analysis” documents must be completed and retained, assessing:
  • Customer’s income and financial obligations.
  • Protection and savings needs.
  • Risk appetite and investment horizon.
• The recommended product must clearly tie back to this documented need – creating an audit trail that can be reviewed in case of disputes or investigations.

This shifts accountability from “buyer beware” to “seller be sure”.

Signed benefit illustrations: No more vague expectations

To reduce miscommunication and over‑promising:

• Insurers must provide signed benefit illustrations, especially for long‑term, savings and investment‑linked products.
• These illustrations should:
  • Separate guaranteed and non‑guaranteed benefits.
  • Show charges and commission impact on returns.
  • Illustrate policy values under different, regulator‑prescribed return scenarios.

When mis‑selling complaints arise, these signed documents will be central evidence: Did the customer sign off on what was clearly explained, or were they misled at the point of sale?

4. What This Means for Key Stakeholders

For Insurers

Insurers move from a world of broad principles to regulator‑designed guardrails:

• Margin compression & product redesign
  • Stricter commission caps and clearer disclosures will pressure high‑commission, low‑value product designs.
  • Expect simpler, more value‑transparent products with reduced front‑loaded commissions and greater alignment to customer retention and persistency.
• Compliance and documentation
  • Systems must capture and store need analysis forms, benefit illustrations, and commission disclosures.
  • Audit and risk teams will have to track compliance down to individual agent or branch level.
• Distribution strategy rebalancing
  • Over‑reliance on bancassurance and corporate agents with high commission structures becomes riskier.
  • Digital direct‑to‑consumer (D2C) and low‑cost partnerships (fintechs, workplace platforms) may become more attractive as commission economics normalise.

Insurers that get ahead with clean, commission‑rationalised products and transparent sales journeys will likely gain regulatory goodwill and customer trust.

For Banks and Corporate Agents

Banks, as the largest corporate agents, face a structural reset:

• Board‑level insulation from insurers
  • Reduced ability for a bank‑linked insurer to influence board‑room strategy in distribution.
  • Higher responsibility on bank boards and risk committees to ensure fair product selection and pitch practices.
• Sales process overhaul
  • Mandatory need analysis, documented disclosures and suitability checks.
  • Stronger internal conduct frameworks, monitoring, and consequences for mis‑selling.
• Revenue model impact
  • Commission caps and greater transparency will reduce the attractiveness of pushing complex, high‑commission products to unsuitable segments.
  • Banks may diversify into fee‑based advisory models and premium‑segment wealth insurance with more robust advice standards.

For Other Intermediaries (Agents, Brokers, Web Aggregators)

Intermediaries are being nudged up the value chain from pure selling to advice and long‑term relationship management:

• Higher bar to enter and stay
  • Stricter fit‑and‑proper conditions.
  • Real threat of suspension for mis‑selling, poor documentation, or conflicts of interest.
• Business model evolution
  • Traditional agents will need to professionalise, focusing on:
    • Genuine financial planning conversations.
    • Persistency and servicing, not just fresh acquisition.
  • Brokers and web aggregators will compete on disclosure clarity, comparison quality and UX, rather than just lead generation.

5. Implications for Policyholders

For policyholders, the intent is clear: cleaner governance, clearer disclosures, and fewer nasty surprises.

In practical terms, customers can expect:

• Visibility into commissions
  • Knowing how much their distributor earns from the policy.
  • Being able to compare products not just on benefits, but also on cost structure.
• Better product fit
  • Stronger right‑fit requirements mean products more closely align with actual needs and affordability.
  • Fewer cases of people being locked into long‑term policies they didn’t fully understand.
• Improved grievance redressal
  • With written need analysis and signed benefit illustrations, it becomes easier to:
    • Prove mis‑selling.
    • Seek redress with IRDAI’s ombudsman and other mechanisms.

6. How Insurers and Insurtechs Can Turn Regulation into Opportunity

For industry professionals and insurtech founders, the 2025 amendments can be a catalyst for innovation, not just a compliance burden.

a) Embedded and Digital Insurance with Transparent Economics

• Build journeys where:
  • Commission and charges are clearly itemised during purchase.
  • Customers can toggle product variants and see how commissions and benefits change.
• Use this transparency as a differentiator: “We show you what we earn”.

b) Data‑Driven Suitability Engines

• Use customer data (with consent) to:
  • Auto‑populate need analysis.
  • Suggest coverage bands and product types.
  • Flag high‑risk mis‑selling cases in real time (e.g., elderly customer being sold long‑term unit‑linked products).

Suitability analytics can become a core risk and distribution performance tool, not just a compliance checkbox.

c) Commission Structures Linked to Persistency and Outcomes

• Design variable commission structures that:
  • Reward long‑term policy continuity and claim‑time support.
  • Penalise early lapses and complaints.
• Align agent success metrics with policyholder outcomes, using IRDAI’s new powers as an enabling framework.

d) Governance Tech and Conduct Monitoring

• Deploy “RegTech” solutions that:
  • Monitor sales calls, scripts and digital journeys.
  • Detect red‑flag patterns suggesting mis‑selling or mis‑disclosure.
  • Provide near‑real‑time dashboards to compliance and risk teams.

7. The Bigger Picture: 2025 Bill as Part of a Structural Reform

It’s important to view the mis‑selling and commission‑focused provisions in the broader context of the Sabka Bima, Sabki Raksha Bill, 2025:

• The Bill is also designed to deepen insurance penetration, including via:
  • Higher foreign investment flexibility (FDI liberalisation).
  • New entity forms and entry pathways.
• But with more capital and more players, the cost of poor conduct also rises. IRDAI’s “superpowers” on mis‑selling, commissions and conflicts are the conduct‑risk counterweight to this expansion.

Growth without trust is fragile. The 2025 amendments are ultimately about making growth and trust move together.

What Insurance Professionals Should Do Now

For those building a career or business in insurance, this is a moment to course‑correct proactively:

• Audit your current sales and commission practices:
  • Which products are most likely to be challenged under stricter mis‑selling scrutiny?
  • Where is disclosure weak or inconsistent?
• Re‑train your teams:
  • Move from script‑driven pushing to needs‑based advisory conversations.
  • Emphasise documentation, clarity and ethical selling.
• Invest in systems:
  • Digitise need analysis, benefit illustrations and commission disclosure.
  • Ensure these artefacts are easily retrievable for 7–10 years for audit and dispute resolution.
• Engage with regulators and industry bodies:
  • Participate in consultations when IRDAI notifies new detailed regulations under Section 40, 32A and 42D.
  • Influence implementation in a way that is both customer‑protective and operationally practical.

Conclusion

With the Sabka Bima, Sabki Raksha (Amendment of Insurance Laws) Bill, 2025, IRDAI has been equipped to directly shape how commissions are paid and disclosed, how conflicts of interest are managed, and how product suitability is enforced. For an industry often criticised for opaque practices, this marks a decisive shift towards cleaner governance and clearer disclosures.

The winners in this new regime will be:

• Insurers that prioritise transparent economics and customer‑centric designs.
• Distributors that evolve from sellers to trusted advisors.
• Insurtechs that build tools to make compliance and customer protection native to the journey, not bolted on.

For everyone else, the cost of mis‑selling just went up.