RBI's push to curb mis-selling by banks may put life insurers in the cross hairs

Subscribe to enjoy similar stories. On 11 February, the Reserve Bank of India released draft guidelines that seek to make banks more accountable for the financial products they sell to individuals. The guidelines aim to prevent banks from mis-selling various financial products, especially life insurance plans that double up as investments.

Finance minister Nirmala Sitharaman supported the RBI’s move, calling mis-selling an offence. While the draft guidelines dwell on various dubious selling practices, they don’t detail the specific checks and balances banks would need to maintain, or the penalties they would incur if for failing to do so. For now, it’s business as usual.

However, if the RBI specifies these details, the life insurance industry could end up in hot water. As a sales channel, banks are integral to the life insurance sector and their importance has progressively increased. There was a time when the life insurance sector revolved entirely around individual agents.

This was when the government-owned Life Insurance Corporation (LIC) was the only life insurer. That started changing when the industry was opened to private players in 2000. Many of the earliest private entrants also operated banks.

Also, as more bank branches came up, the banking channel grew in importance for the life insurance sector. A measure of this is where life insurers get their new business from. Banks are the second-largest mobilizer, with their share of new premiums increasing from 20.8% in 2014-15 to 32.6% in 2024-25.

The other channel that has gained share is direct sales. These gains have come at the expense of the individual agent, whose share is now below 50%. Banks bring in nearly one-third of new business for life insurers.