- Swaminathan Iyer called for revamping insurance distribution to rebuild customer trust
- Rising distribution costs and mis-selling complaints challenge the insurance sector
- Distribution is concentrated in Tier-1 and Tier-2 cities, limiting rural access
Insurance Regulatory and Development Authority of India (IRDAI) member Swaminathan Iyer in an interview with NDTV Profit on Monday has called for a revamp of the insurance distribution system, highlighting fragile customer trust, rising distribution costs and persistent concerns over mis-selling.
While he was speaking on the regulator's consultation paper on insurance distribution, Iyer said the focus now was on expanding availability across India, ensuring that incentives for distributors were aligned with customer interests and improving the delivery of insurance products. Stressing on the importance of rebuilding customer confidence in the insurance sector he said, “Need to bring customers' trust back.” He also noted that customer trust was currently fragile, while complaints about mis-selling continued to pose a challenge for the industry.
The IRDAI memeber pointed to a sharp increase in distribution costs over the past few years. He said data spanning a decade has indicated a lack of efficiency in the distribution system, raising questions about whether the existing model was delivering insurance products effectively and economically.
According to Iyer insurance distribution remained concentrated in Tier-1 and Tier-2 cities, this indiciated that there is a need to improve access in underserved markets and ensure that insurance reached customers across the country.
He went on to clarify that the paper released by IRDAI was a consultation exercise intended to explore possible improvements in the distribution framework and not an exposure draft of a regulation. The paper focuses on the principle of “rewards on delivery”, with additional incentives proposed for expanding insurance distribution into new markets.
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A key concern highlighted by Iyer was the disconnect between distributors' financial incentives and customers' interests. He said distributors were often more interested in earning commissions than in ensuring that customers received suitable insurance products. He even gave instances where distributors demanded short-pay products from insurers, highlighting concerns around the incentives shaping product distribution and customer outcomes.
He further added that the public was increasingly aware of how the insurance sector operated, making it important for insurers and distributors to address complaints and improve transparency. The regulator's focus, he indicated, was on finding solutions that served the public interest while making the distribution ecosystem more efficient and accountable.
Iyer said insurance was a highly distribution-driven product, making the effectiveness of distribution channels critical to the sector's growth and penetration.
He also called for a shift in the industry's approach, with greater emphasis on volume-driven expansion rather than viewing distribution primarily through the lens of value. The objective is to widen access to insurance and reach more people, particularly in markets that remain underserved.
The IRDAI memeber also said that the consultation paper represents one step towards improving the existing system. Iyer also added that the industry was supportive of a revamp of insurance distribution.
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