Why Your Claim Rejection Might Start at the Point of Sale
India's insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), is planning a significant overhaul of how insurance agents and distributors are paid. The goal is simple: to tackle the persistent problem of mis-selling that has plagued the sector for decades.
According to a Reuters report citing sources with knowledge of ongoing discussions, IRDAI is proposing to shift away from large upfront commission payments to a model where commissions are spread across the life of a policy. A draft framework could be circulated within the next four to six weeks.
For policyholders who have faced claim rejections, policy lapses, or discovered they were sold completely unsuitable products, this development strikes at the root cause of their problems.
The Commission Trap: How Mis-Selling Happens
Under the existing framework, distributors can earn commissions of up to 40 per cent of premiums on some life and health insurance products. A significant portion of this is paid upfront at the point of sale.
This structure creates a dangerous incentive. Agents and bank relationship managers are rewarded for sales volume, not for ensuring the product fits the customer's actual needs. The result is a system where the agent's earnings consistently take priority over the policyholder's financial security.
India Today has documented this crisis extensively over the past year. Their reporting revealed how bank relationship managers routinely pushed unsuitable insurance products on customers who simply walked in for fixed deposits or loans. Senior citizens were sold complex insurance-cum-investment products carrying high mortality charges. Customers were pushed into buying policies they did not need, could not afford, or did not understand.
When these policyholders later file claims, they often discover the hard truth: the product was never designed to meet their needs in the first place.
What IRDAI Is Proposing
The regulator is considering several structural changes that could reshape the industry.
Staggered Commission Payments
Instead of paying the bulk of commissions upfront, IRDAI wants to spread payments across the life of the policy. This would align India with major global markets, including the United States, the United Kingdom, and Europe. The logic is straightforward: if agents continue to earn commissions only as long as the policy remains active and serviced, they have a vested interest in selling suitable products that customers actually maintain.
Effort-Based Pricing
IRDAI is also considering a pricing model that ties commission rates to the effort involved in selling and servicing a policy. An agent who provides face-to-face advisory services, assists with paperwork, and helps manage claims would earn a higher commission than a bank that sells a policy as an add-on product during a loan transaction. This recognises that genuine financial advice deserves better reward than passive cross-selling.
Product-Based Caps
Commissions could be capped depending on the product type, its complexity, and the length of the policy. This would prevent the worst excesses where complex, high-margin products are pushed aggressively because they pay the agent the most, regardless of whether they suit the buyer.
Tighter Disclosure Requirements
Agents, brokers, and other distributors will likely face stricter disclosure requirements. This means greater transparency around how much commission is being earned, and clearer documentation of why a particular product was recommended. For policyholders, this paper trail can be invaluable when disputes arise later.
IRDAI Chairman Ajay Seth has indicated that a distribution reform consultation paper could be issued by the end of July 2026.
The Numbers Behind the Problem
India is one of Asia's largest insurance markets, with gross premium collections exceeding Rs 11.9 lakh crore annually. Yet insurance penetration stood at just 3.7 per cent of GDP in 2024, well below the global average of around 7.2 per cent.
The government has taken steps to address this gap. Last year, it cut the tax on individual health and life insurance premiums to zero from 18 per cent to make policies more affordable. It also opened the sector to 100 per cent foreign direct investment, drawing fresh interest from overseas insurers.
Despite these measures, the mis-selling crisis persists because the fundamental incentive structure has remained unchanged. Until now.
Why Mis-Selling Leads Directly to Claim Rejections
At Tatkal Claims, we see the aftermath of mis-selling every day. Here is how the commission trap translates into claim denials for ordinary policyholders.
The Wrong Product for the Wrong Need
A customer seeking pure health coverage is sold an investment-linked insurance plan because it pays higher commissions. When a hospitalisation claim arises, the policy's coverage is inadequate, or the waiting periods and exclusions are far stricter than a standard health plan would have been.
Non-Disclosure Encouraged by Agents
Agents eager to close a sale sometimes advise customers to withhold medical history or other material facts. They know that full disclosure might delay or complicate the sale. When the claim is eventually filed, the insurer denies it based on material non-disclosure, and the agent is long gone.
Policies Sold Without Understanding
Senior citizens are frequently sold complex products with long lock-in periods, high charges, and conditions they cannot realistically meet. When they or their families later need to claim, they discover the policy does not cover what they assumed it did.
Bancassurance Abuse
Customers visiting banks for loans or deposits are pushed insurance products as mandatory add-ons. These policies are often bundled, poorly explained, and sold by bank staff with no genuine insurance expertise. When claims arise, the bank disclaims responsibility and the insurer points to policy exclusions.
What You Should Do If You Were Mis-Sold a Policy
If you suspect you were mis-sold an insurance product, you are not powerless. Here are the steps you should take immediately.
Gather All Documentation
Collect every piece of paper, email, SMS, and WhatsApp message related to the sale. If the agent made verbal promises, write them down with dates and details. Look for the proposal form you signed, and check whether the agent filled it in accurately. Any discrepancy between what you told the agent and what appears on the form is evidence of mis-selling.
Check the Free-Look Period
Most insurance policies come with a 15 to 30 day free-look period from the date of receipt. If you are still within this window, you can cancel the policy and receive a full refund of your premium minus minimal charges. This is your easiest escape route.
File a Complaint with the Insurer
If the free-look period has passed, file a formal written complaint with the insurer's grievance redressal cell. Quote the specific mis-selling practices, attach your evidence, and demand a resolution. Insurers are required to respond within a defined timeframe.
Escalate to IRDAI
If the insurer does not resolve your complaint satisfactorily, escalate to IRDAI through the Bima Bharosa portal or by contacting the Insurance Ombudsman. The Ombudsman can award compensation up to Rs 50 lakh, and the process is free for policyholders.
Seek Legal Assistance
For complex cases involving large sums, claim rejections due to mis-selling, or disputes over policy terms, professional legal help can make the difference. At Tatkal Claims, we specialise in challenging unfair claim rejections, interpreting policy wordings, and holding insurers and distributors accountable for mis-selling practices.
How to Spot Mis-Selling Before You Buy
Prevention is always better than fighting a rejection. Here are the warning signs that an agent or bank is prioritising their commission over your needs.
The agent is pushing a single product repeatedly, without comparing alternatives. They discourage you from reading the policy document or fine print. They rush you to sign before you can think it over. They advise you to hide medical history or other material facts. They cannot clearly explain the exclusions, waiting periods, or claim process. The product is bundled with a loan or deposit that you actually came for. They promise returns or benefits that sound too good to be true.
If any of these red flags appear, walk away. A genuine insurance advisor will welcome your questions, encourage comparison, and document everything transparently.
Looking Ahead: A Better System for Policyholders
If IRDAI's proposed reforms are implemented, the insurance landscape in India could shift meaningfully. Agents who sell unsuitable products will no longer pocket massive upfront commissions and disappear. Instead, they will need to ensure the policy remains active and serves the customer over time to keep earning.
This aligns the agent's interest with the policyholder's interest. It reduces the incentive for aggressive, deceptive sales tactics. And it creates a paper trail of ongoing service that can protect policyholders when disputes arise.
For the millions of Indians who have been victims of mis-selling, and for the countless families who have faced claim rejections because of unsuitable policies sold by commission-hungry agents, this reform cannot come soon enough.
Bottom Line
Mis-selling is not just an industry problem. It is a direct cause of claim rejections, financial distress, and broken trust between policyholders and insurers. IRDAI's proposed commission overhaul targets the root cause of this crisis by changing the incentives that drive bad behaviour.
If you are currently dealing with a claim rejection, policy dispute, or suspect you were mis-sold an insurance product, understanding these regulatory changes can strengthen your case. The system is finally beginning to recognise that what happens at the point of sale determines what happens at the point of claim.
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Facing a claim rejection due to mis-selling, or suspect your policy was sold under false pretences? Contact our legal team at Tatkal Claims for expert assistance in challenging unfair claim denials and holding distributors accountable.