Conduct Risk Management in Indian Bancassurance

Bancassurance now accounts for over 55% of individual life insurance new business and a growing share of non-life retail premium in India. The scale has attracted regulatory attention. Both the IRDAI and the Reserve Bank of India have flagged conduct concerns in bancassurance distribution, including mis-selling of ULIPs to senior citizens, bundling of credit-linked insurance without informed consent, and target-driven pressure on bank front-line staff.

The regulators' tools are growing. The IRDAI Master Circular on Corporate Agents, 2024 tightened suitability and disclosure standards. The IRDAI (Expenses of Management) Regulations, 2024 capped distribution costs and made commission flows more transparent. The RBI Master Direction on Customer Service in Banks, 2023 explicitly addresses cross-selling pressure. The result is a distribution channel under simultaneous oversight by two regulators, each with overlapping but not identical priorities.

Four conduct failure patterns dominate enforcement and complaint volumes in Indian bancassurance.

First, product mismatch, where a long-tenor ULIP or endowment plan is sold to a customer whose financial profile suggests short-term liquidity needs. This is the single largest source of policyholder ombudsman complaints in life insurance.

Second, credit-linked insurance bundling, where insurance is presented as a mandatory adjunct to a home or vehicle loan rather than as an optional product. The RBI has been explicit that such tying is not permitted, but it persists in practice through soft pressure rather than written policy.

Third, churn and rebalancing, where existing policies are surrendered prematurely to fund new policies the customer does not need, often to refresh the bank's commission. The IRDAI's persistency norms and the corporate-agent regulations both target this behaviour.

Fourth, misrepresentation of returns, where ULIP returns are projected at illustrative gross rates without clear disclosure of charges, mortality cost, or the risk of negative returns. The IRDAI standardised benefit illustrations precisely to limit this, but bank front-line conversations frequently deviate.

A working bancassurance conduct framework rests on three pillars: design, distribution, and post-sale.

Product design pillar

Review the bancassurance partner's product set against the bank's customer segments. Long-tenor ULIPs may not suit a portfolio dominated by short-tenor depositors. Single-premium endowment plans bundled with FDs are a recurring grey zone. Maintain a written product approval policy that the bank's board has signed off, with explicit segment-suitability constraints.

Distribution pillar

Front-line sales conduct is where most failures originate. Controls should include:

• mandatory needs analysis documented before any product recommendation, with a copy retained for at least 5 years
• a clear cooling-off period of 15 to 30 days for life products, with audited refund processes
• variable-pay structures that include conduct adjustments, not just sales volume
• branch-level conduct dashboards that flag outlier sellers by complaint rate, surrender rate, and persistency

Post-sale controls are where banks recover from front-line conduct gaps. The welcome call, where the insurer's call centre confirms the customer's understanding of key features within 7 to 15 days of issuance, is now mandatory for high-premium and long-tenor products. The effectiveness of the welcome call depends on three factors:

• the script must probe understanding, not just confirm purchase
• the call must be recorded and retained, with a defined sampling regime for compliance review
• material misunderstanding detected must trigger a free-look refund without friction, and a feedback loop to the originating branch

The IRDAI Corporate Governance Guidelines, 2024 and the RBI's Customer Service Direction both expect board-level oversight of conduct risk in bancassurance. A working board pack should include, at quarterly minimum:

• the partner-wise mix of new business and the persistency at 13, 25, 37, and 61 months
• complaint volumes broken down by branch, product, and seller, with root-cause analysis
• the rate of free-look surrender by product, with an outlier review
• the welcome-call failure rate and the actions taken on the originating branches
• regulatory correspondence and penalties from the IRDAI or RBI in the period

Branches with persistent outlier metrics should face structured remediation: training, supervisor escalation, and ultimately suspension of corporate-agent activity. The IRDAI's enforcement record in 2024 and 2025 shows that systemic issues at the branch level can lead to corporate-agency license suspension at the bank level.

The most consequential lever in bancassurance conduct is the incentive structure. Pure-volume incentives produce mis-selling almost regardless of any other control. The IRDAI Master Circular on Remuneration, 2024 and the RBI's expectations push banks towards:

• a bonus pool that draws on persistency and complaint metrics, not just first-year premium
• a clawback of commission on policies that lapse, surrender, or fail welcome-call confirmation within a defined window
• a deferred portion of variable pay, paid out only if persistency holds at 25 or 37 months
• conduct-linked suppression rules, where individual sellers with adverse complaint or surrender patterns receive zero variable pay for the period regardless of volume

Well-run bancassurance partners now incorporate at least three of these features. Banks that have not yet restructured incentives this way are likely to face enforcement pressure as regulators continue tightening.

Two developments will reshape Indian bancassurance conduct over the next 18 months.

First, explicit suitability rules are likely. The IRDAI's 2024 consultation paper on standards for distribution suggested moving towards a US/UK-style suitability obligation, where the seller must document why the product matches the customer's needs and a regulator can challenge the recommendation in retrospect. This shifts the burden of proof: today the customer must prove mis-selling, in future the seller may need to prove suitability.

Second, the Bima Sugam platform changes the disclosure terrain. When customers can compare bancassurance products against direct, broker, and digital channels on a regulator-backed platform, opaque product features become commercial liabilities. Banks should expect customer questions about why an in-branch ULIP costs more or returns less than a comparable Sugam-listed product. Conduct risk in bancassurance increasingly looks like the conduct risk in retail banking after the Sachet portal: simpler products, sharper disclosures, and lower tolerance for variable selling practices.