Mis-selling in Commercial Insurance India: A Broker's Guide

Indian regulatory discourse on mis-selling has, for a decade, been a life-insurance and ULIP discussion. Commercial insurance brokers have largely watched from the sidelines, treating mis-selling as a retail conduct issue that did not reach SME or mid-market placements. That gap is closing.

In the retail context, mis-selling typically means a product mismatch: a long-tenor ULIP sold to a customer with short-term liquidity needs, or a credit-linked policy bundled without informed consent. The bancassurance conduct framework addresses exactly these patterns. Commercial mis-selling looks different but is no less consequential.

In commercial insurance, mis-selling typically takes four forms:

• Under-insurance, where the sum insured is materially below reinstatement value, exposing the insured to the average clause at the moment of claim. The under-insurance angle is the single largest source of dispute in fire and engineering claims in India.
• Missing coverage, where the placed wording omits a coverage the insured's operations clearly require, such as machinery breakdown for a manufacturer or product liability for an exporter.
• Weak or non-standard clauses, where conditions, warranties, or exclusions are accepted without negotiation despite materially narrowing the cover the insured believed they were buying.
• Wrong product altogether, such as a standard fire policy placed where an industrial all-risks policy was clearly the appropriate vehicle, or a CGL policy placed where the exposure profile called for product liability.

The consequence in commercial insurance is rarely a small consumer ombudsman complaint. It is a denied or reduced claim, often in the crores, followed by litigation that examines what the broker knew, recommended, and recorded. The question is not whether mis-selling exists in commercial placements. It is whether the broker can defend the placement when the claim is disputed.

The IRDAI's conduct architecture for the last decade has concentrated on retail life, ULIPs, and bancassurance because complaint volumes were highest there. The picture in 2026 is shifting for three reasons.

First, the IRDAI (Insurance Brokers) Regulations, 2018 already impose a fiduciary duty on brokers to act in the client's interest, conduct a needs analysis, and recommend appropriate cover. These obligations are written. What has been lacking is enforcement granularity in the commercial book. Recent IRDAI inspection reports of broker firms during 2024 and 2025 show the regulator increasingly asking for documented placement rationale, not merely a quotation comparison.

Second, the Consumer Protection Act 2019 gave the Central Consumer Protection Authority (CCPA) suo motu powers over unfair trade practices, including insurance mis-selling. The CCPA has used these powers in retail finance and is now extending its review to corporate buyers, particularly SMEs, who are treated as consumers under the Act. An SME with a denied fire claim no longer needs to file a private suit. The CCPA can investigate on its own motion.

Third, the IRDAI (Expenses of Management) Regulations, 2024 capped distribution costs and made commission flows transparent. The unintended effect is that brokers now compete more visibly on advice quality, because pricing differentiation has narrowed. Where advice is the basis of competition, advice failures become commercial liabilities.

The international precedents tell brokers where this ends. The UK FCA's PPI remediation cost the British financial sector over GBP 38 billion in redress, and PPI was, in essence, a documentation failure. The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry concluded in 2019 that broker conduct in commercial placements was a structural concern requiring statutory intervention. India is approximately a decade behind these jurisdictions. The direction of travel is settled.

Each of the four commercial mis-selling patterns has a distinct evidentiary signature. Brokers should know what each looks like when a claim dispute lands.

Under-insurance

The most common pattern. A property sum insured of INR 50 crore is placed against a reinstatement value of INR 80 crore. A partial loss of INR 10 crore is reduced by the average clause to INR 6.25 crore. The insured discovers the gap at the moment of greatest pain. The broker's defensible position requires evidence that a reinstatement valuation was conducted, the gap was flagged in writing, and the client made an informed choice to accept the under-insurance, typically for premium reasons.

Missing coverage

A chemical manufacturer placed on a standard fire policy with no machinery breakdown, no business interruption, and no public liability cover. Each of these is a foreseeable exposure for the risk class. The broker's exposure is heightened where the client's industry profile is publicly known and the missing cover is standard market practice.

Weak or non-standard clauses

A marine cargo policy with a 10% co-insurance condition the client was unaware of. A liability policy with a defence-within-limits structure that erodes the indemnity. A property policy with a 7-day claim notification warranty that the client breaches in good faith. These are wording-level failures, where the placed policy differs materially from the cover the client believed they had bought.

Wrong product

A technology services company placed on a CGL policy when the loss profile is overwhelmingly tech E&O. A logistics operator placed on a standard motor fleet policy when carrier liability under the Carriage by Road Act was the operative exposure. Wrong-product placements are the hardest to defend because they suggest the broker did not understand the underlying business.

In each pattern, the broker's first line of defence is a documented diligence record showing that the risk was assessed, the relevant coverages were considered, and the placement reflects an informed choice.

Indian broker liability has historically been pursued through three channels: an IRDAI complaint, a consumer forum case, and a civil professional-negligence suit. The mix is changing.

The IRDAI (Insurance Brokers) Regulations, 2018, Regulation 28, set out the code of conduct for brokers. Key obligations include conducting a detailed fact-find, advising the client appropriately, drawing the client's attention to material restrictions and exclusions, and maintaining records for at least 7 years. Breach of Regulation 28 is the foundation of most regulator-initiated action.

The Consumer Protection Act 2019 explicitly covers services including insurance intermediation. An SME with a turnover up to a defined threshold is a consumer. The 2019 Act permits class actions and CCPA suo motu investigations. Compensation orders against brokers under the Act have grown both in frequency and quantum during 2024 and 2025.

Professional negligence suits, the third channel, are the most consequential financially. Where a broker fails to procure cover that a reasonable broker in the same market would have placed, the broker is exposed to damages equal to the uninsured loss. Indian courts have applied this principle in a line of cases, including the well-known principle that the broker owes a duty of skill and care commensurate with their professional standing.

Professional Indemnity insurance for brokers, mandated by the IRDAI under Schedule III of the Brokers Regulations, sits behind these claims. PI insurers are increasingly demanding evidence of placement diligence as a condition of cover. A broker who cannot produce a documented suitability analysis after a claim event is exposed both to the underlying liability and to a coverage dispute with their own PI insurer.

The practical effect: the question for a broker after a disputed claim is no longer whether liability is theoretically possible. It is whether the diligence record will survive forensic review.

The most important conceptual change in Indian insurance conduct is the shift in the burden of proof. Historically, an aggrieved client had to prove mis-selling: that the broker recommended a product, that the recommendation was unsuitable, and that loss followed. The defensive posture worked because clients lacked the technical knowledge to construct the case.

The IRDAI 2026 suitability shift is moving the burden the other way. The direction of travel, taken together from the 2024 IRDAI consultation paper on distribution standards, the IRDAI Master Circular on Corporate Agents, 2024, and the EOM regime, suggests that within 18 to 24 months brokers will be expected to evidence affirmatively that the placement was suitable. The burden flips. Silence in the file becomes evidence against the broker.

Three concrete obligations are likely to crystallise:

• A documented fact-find capturing the client's industry, operations, exposure profile, indicative reinstatement values, and prior claims experience.
• A coverage rationale showing why the placed product, sum insured, and key clauses match the client's exposure and the standard market practice for that risk class.
• A gap disclosure identifying where the placed cover falls short of comprehensive protection and recording the client's informed acceptance of those gaps, typically on premium or commercial grounds.

Sarvada Risk Intelligence produces this structured record as a working output for brokers, with a company risk profile covering industry, plant, workforce, occupancy and indicative sum insured, and a policy gap analysis identifying under-insurance, missing coverages, and weak or missing clauses. Each finding carries an IRDAI citation. The output is tenant-isolated to the broker and serves as a contemporaneous diligence record, not a regulator-mandated form.

Brokers who already maintain this level of file discipline will find the suitability shift uneventful. Brokers who do not will find their books reviewed retrospectively against a standard they did not anticipate.

A defensible placement record in 2026 has five components. None is novel. The discipline is in completeness and contemporaneity.

1. Risk profile

A documented description of the client's business, captured before quotation. Industry classification, manufacturing or operational footprint, workforce, occupancy hazard, prior loss experience, and indicative reinstatement values for material assets. The profile should be dated and signed off by the client.

2. Coverage scoping

A written analysis of the coverages the risk class requires, mapped to the placed product. For a manufacturer this typically includes fire, machinery breakdown, business interruption, public liability, product liability, and group health. Each coverage either placed or consciously declined.

3. Gap analysis

The difference between optimal cover and placed cover, with reasons. Premium constraints, capacity constraints, or client risk appetite are legitimate reasons. The absence of analysis is not.

4. Wording diligence

A review of the placed wording against standard market practice. Onerous warranties, narrow definitions, exclusions of standard perils, co-insurance conditions, and notification clauses should each be flagged and either accepted in writing by the client or negotiated.

5. Renewal continuity

The placement record carries forward across renewals. Changes in sum insured, changes in coverages, and emerging exposures must be re-tested. A static file is itself evidence of a failure of diligence.

The defensible record is not a single document. It is a structured set of artefacts produced as the placement happens, capturing both what was decided and why.

Three policy developments converge during 2026 to make documented broker diligence non-optional.

First, Bima Sugam. The regulator-backed insurance platform begins its first commercial use case rollout in May 2026, initially for selected SME lines. Once buyers can compare wordings, premia, and structures on a regulator-backed platform, the broker's value proposition shifts away from price discovery and onto risk advisory. A broker who cannot articulate why a placement is suitable for a specific exposure profile competes only on commission, which the EOM regime now constrains.

Second, the IRDAI (Expenses of Management) Regulations, 2024 have already restructured how brokerage flows through the system. With commission transparency, the broker's premium for advice quality must be visible and defensible. Advice without evidence is no longer commercially supportable.

Third, the IRDAI (Protection of Policyholders' Interests) Regulations, 2017, which already obligate intermediaries to disclose material features and exclusions, are widely expected to be revised during 2026 to add specific suitability and documentation obligations consistent with the 2024 corporate-agent direction. Brokers should plan placements as though the revised regulations are already in force.

The rational broker response is to build the diligence machinery now, not after the next IRDAI inspection or the next disputed claim. The structure is the same regardless of which regulatory trigger arrives first: a documented risk profile, a coverage rationale grounded in regulation and standard practice, an explicit gap analysis, and a contemporaneous wording review. Sarvada Risk Intelligence builds exactly this artefact set for brokers, with IRDAI citations on every finding and a tenant-isolated record per client. The output is not a compliance certificate. It is the documented basis on which a placement can be defended, whether the audience is the client, the IRDAI, the CCPA, or a court.

Brokers who treat commercial insurance as a technical advisory practice, with the file discipline that implies, will navigate this transition. Brokers who treat it as a transactional product-placement business will find the transition forced on them.