Conduct Rules and Mis-Selling Liability for Individual Agents

Start with the fact that reorders everything an advisor assumes about conduct risk.

Under the IRDAI Master Circular on Point of Sales Products and Persons for life insurance (IRDAI/LIFE/CIR/MISC/215/12/2019), the life insurer is responsible for the conduct of the POSP-LI representing it, and misconduct by that person makes the insurer liable to penalty under Section 102 of the Insurance Act, 1938. Where the person is engaged by an intermediary rather than the insurer directly, the intermediary is responsible for the conduct and carries the Section 102 exposure.

Read that with your own name in it. You met the client. You explained the cover. You filled the proposal. Your POS Code went on it. And the regulatory penalty for what you said at that kitchen table is levied against the entity whose code you carried.

Advisors usually hear this and relax. That is the wrong conclusion. Responsibility that lands on somebody else does not evaporate. It travels back to you through the only instrument connecting you to your principal, the contract of engagement. The entity holding a statutory exposure for your conduct will not hold it passively.

So the honest description of an individual advisor's conduct risk in India is not "IRDAI will fine me." It is: the regulator squeezes the principal, and the principal squeezes you. Everything practical follows from that asymmetry.

The conduct requirements applying to a point of sales person are short enough to state without paraphrase. A POSP must comply with IRDAI's conduct requirements covering ethical selling, no push-selling, proper disclosure, and no misleading representation of the policy. Four phrases, each with a failure mode at the level a solo advisor works.

Ethical selling collapses into one question: was this product suitable for this household, or was it the product you happened to be able to place? A POSP may solicit only those products IRDAI has approved as POS products, a set narrow by design: simple, standardised, largely pre-underwritten. On the life side it runs to pure term (with or without return of premium), non-linked non-participating endowment, immediate annuity, non-linked non-participating health, and microinsurance. When a household needs something outside the set, the ethical answer is that you are not the person to place it.

No push-selling is the duty most often breached by accident rather than intent, usually at the end of a month. A household that says no twice and buys on the third call has not been advised. It has been worn down.

Proper disclosure on POS products has checkable edges, which is unusual and useful. A POS-Life product carries the rule that the premium paying term shall always be equal to the policy term. If a prospect walks away believing they will pay for ten years on a twenty year plan, that is a disclosure failure with a written rule behind it. Similarly, policy issuance turnaround on a POS-Life product must not exceed four working days, an expectation worth stating out loud rather than letting the client invent.

No misleading representation is where the money sits. Representation includes what you said, what you implied, and what you let the client keep believing after they said it back to you incorrectly.

One further duty: a POSP may not issue or publish any advertisement or sales material without the prior approval of both the engaging entity and the insurer. That covers the status image, the forwarded comparison chart and the pamphlet from the corner shop. The principal owns the consequence of what you publish.

Section 102 of the Insurance Act, 1938 is the penalty provision for contraventions of the Act and of directions made under it. The POSP framework routes your conduct into it by making the engaging entity responsible for you. The path: your act, your principal's responsibility, its penalty.

That matches the visible enforcement pattern. In the rebating context, IRDAI's published penalty actions land on insurers, including a INR 1 crore penalty on Reliance General Insurance in a matter whose findings included payouts made to entities and to an individual agent. The individual features in the findings. The order is against the insurer.

One exception is worth separating out, because advisors conflate it with mis-selling. Rebating under Section 41 carries a fine which may extend to INR 10 lakh since the Insurance Laws (Amendment) Act, 2015, and reaches any person, including the policyholder who knowingly accepts. The "first year discount from my side" pitch is a personally reachable offence, not a conduct lapse routed through your principal.

An entity answerable for your conduct behaves predictably. It converts its statutory exposure into contract terms and enforces the contract, because the contract is faster, cheaper and needs no hearing.

That is why the engagement documents an advisor signs, and mostly does not read, contain clauses that look disproportionate to the size of the relationship:

• Sole discretion termination, usually with a short notice period or none at all where conduct is alleged.
• Attribution of every complaint to the POS Code on the proposal, which is what the code exists to enable. The guidelines require every proposal to carry the POS Code and place responsibility for recording it on the insurer. That field is a servicing convenience for you and an accountability trail for them.
• Recovery of amounts where a policy is cancelled in the free-look window, lapses early, or is found to have been sold on a misrepresentation.
• Undertakings on truthful and prompt submission of KYC documentation and declarations to the engaging entity.

It explains the surveillance: free-look cancellation rates by code, early lapse rates by code, complaint density by code, call-quality sampling, mystery shopping. None of that is IRDAI watching you. All of it is your principal protecting itself from Section 102, using your code as the index.

The consequence is a standard often stricter than the regulation. A principal facing a penalty for your conduct has no incentive to run close to the line on your behalf. It will terminate on suspicion rather than proof, because suspicion costs it nothing and proof costs it a regulatory finding. An advisor expecting the benefit of the doubt has misunderstood who holds the risk.

Termination is the sanction, so price it properly. The price is set by a structural feature of the channel that many advisors only discover on the way out.

A POSP is tied to one insurer or intermediary at any given point in time. Not several. Where an advisor appears to place across many insurers, that reach flows from the intermediary's licence, not from the advisor's own status. The tie remains singular. Lose the principal and you lose the whole tie, not a fraction of it.

What that means in sequence:

1. Your code stops. Renewals route elsewhere, because the attribution field on the renewal proposal will not carry a code that no longer exists.
2. Your book does not travel. The households are yours in the relationship sense and the policies are the insurer's in every operational sense. You cannot carry a live policy to a new principal. You can only re-earn the household at its next renewal, and only if you still know when that renewal falls.
3. You re-enter through the front door. A new principal engages you, runs its own fifteen hours of in-house training before its own examination (conducted by that entity against a model syllabus IRDAI specifies, not a centrally administered IRDAI exam), and on passing must issue the certificate and appointment letter within fifteen days and allocate a new unique POS Code.
4. Your history splits. Policies proposed under the old code and under the new one both exist and both renew, and reconciling an old payout statement against a new code is a conversation with two entities who each hold half of it.

Set against a Section 102 penalty that will never be addressed to you, an involuntary end to the tie is the sanction that actually decides an advisor's income. It arrives faster than any regulatory process, needs no reasoned order, and is not appealable anywhere useful.

Conduct is not a side conversation in July 2026. It is the stated driver of the biggest live question in Indian insurance distribution.

IRDAI is preparing an overhaul of commission rules aimed at curbing mis-selling. Reporting on 3 July 2026 (Business Standard) put a consultation paper as expected by end-July 2026, per IRDAI Chairperson Ajay Seth, and 9 July 2026 reporting (Business Today) corroborated it.

The ideas reported as being under consideration, all at proposal stage:

• Staggered or trail commission spread across the life of the policy rather than concentrated at sale.
• Remuneration that reflects the advice and servicing actually given, so a distributor giving personalised advice, help with documentation and support at claim time could earn more than one selling insurance as an add-on, such as a bank.
• Product-wise caps differentiated by complexity and tenure.
• Tighter disclosure of remuneration to policyholders and to the regulator.

Why this aims at conduct rather than cost: distributors can currently earn up to roughly 40 percent of premium on some life and health products, a substantial portion paid at the point of sale (July 2026 reporting; an observed market level, not a regulatory cap). Front-loading rewards the sale and not the outcome, producing churn and replacement that does not benefit the policyholder. The supporting arithmetic sits in numbers IRDAI already holds: non-life commission expense in FY2024-25 was about INR 47,266 crore, up from about INR 39,601 crore, close to 19 percent growth against general insurance premium growth of about 8.5 percent.

For an individual advisor the direction of travel matters more than the detail. Every idea on that list pays the advisor who keeps the household in force and services the claim, and pays less to the advisor who books and moves on.

Because the sanction is contractual and arrives without a hearing, the only defence an advisor has is a record that already exists when the question is asked. Nobody will ask you for it in a format. They will ask your principal, and your principal will look at its own data first.

What is worth keeping, per policy, from the day of the proposal:

1. What you recommended and what the household asked for, in one or two lines, dated. Where those two differ, the note is the entire file.
2. The disclosure points you actually made, specifically the ones with rules behind them: that the premium paying term equals the policy term on a POS-Life product, what is not covered, waiting periods on health, and what the client will pay again next year.
3. The language the conversation happened in. A household advised in Marathi and sent an English proposal summary has been technically informed and practically not. If a complaint alleges the client did not understand, the language record is the first thing asked about.
4. Who was present and who decided. Household mis-selling complaints frequently originate with a member who was not in the room.
5. Refusals. The cover you recommended and the household declined. This protects you when the complaint is that something was never offered.
6. The POS Code as submitted, and the principal you were tied to at the time. Per policy, because both change.

Write the note at the proposal, not at the complaint. A contemporaneous line dated the day of the sale is evidence. The same line written eleven months later, after a free-look cancellation and a call from your principal's compliance desk, is an account of your intentions, and will be read as one.

None of this is required by a circular addressed to you. It exists for one reason: when a complaint reaches your code, the entity deciding what happens to you is not a regulator applying a standard of proof. It is a commercial counterparty deciding how much exposure you are worth.