Kathmandu. In India, the insurance regulator is preparing to impose policy curbs after the distortion of banks and financial institutions forcibly selling life insurance policies to borrowers on the pretext of loan protection in the greed of commission income.
Indian banks were imposing business goals on the employees by saying that the more insurance policies they sold, the more commission and incentives they would provide. Due to this goal, the employees of the bank were forcing any new or old customer who came to take a loan to buy a large amount of life insurance policy.
The employees of the bank did not choose the path of banning the sale of insurance policies through the Insurance Regulatory and Development Authority of India to prevent such bullying. Instead, the bank has proposed to continue bancassurance by reducing the rate of commission received from life insurers or other types of insurers and restricting the distribution of incentives to bank employees.
In the consultation paper released by the regulator, it has been proposed to completely ban foreign travel, expensive gifts, and gift-based incentives given to bank employees or institutions to increase the sale of insurance. All payments made by the insurer to the bank will be counted as commission. Any direct or indirect amount given by the insurance company to the bank will have to be limited within the prescribed limit by keeping it within the scope of the commission. Earlier, apart from the commission, the insurer had also been providing facilities like luxury gifts, foreign travel, etc. separately to the employees of the bank.
Banks are also going to bring a rule that if they give home loan, vehicle loan or other personal loan to the customer, they will not approve the loan until the insurance is purchased. Now, after the implementation of the proposed provision, the borrower will have the freedom to buy the insurance policy from any insurance company or medium and submit it to the bank.
The proposal has brought down the high and opaque commissions received by banks to the range of 15 to 25 per cent. This is expected to curb the tendency of bank employees to sell insurance policies unnecessarily or incorrectly to borrower customers in the greed of high commissions.
The regulator aims to sell appropriate insurance plans only according to the needs and abilities of the customers and to control the sale of insurance policies by forcing banks or financial institutions to lend money to the insurance linked to the loan or by putting undue pressure or confusion. It is also intended to bring more transparency to protect the interests of the insured.
The regulator has issued a consultation paper on a comprehensive overhaul of India’s insurance sector and put forward a new proposal on commission limits and management costs. The draft proposal invites suggestions and feedback from stakeholders by October 25, 2026.
It is expected that insurance companies will be able to increase their operational efficiency by reducing operating expenses and commission expenses and the insured will get the direct benefit in the form of cheaper insurance premiums and higher returns. This insurance-friendly policy reform and transparency step taken by the Indian regulator for Nepal’s insurance market can be studied and exemplary.
The Government of India has already announced the ambitious target of insurance for all by 2045 two years ago. For this, it is using all possible means of distribution of insurance policies. Bancassurance, i.e., the means of distributing insurance plans through banks, is also an important means of expanding the reach of insurance, so despite the extreme distortions, the regulatory body has tried to attack the root of the distortion instead of banning it. On the other hand, in Nepal, the ban on bancassurance services instead of controlling the anomalies has not led to the substantial expansion of life insurance in Nepal’s insurance market.
