Insurance Promoters Must Share Cost of Customer Harm

India’s insurance regulator has proposed linking chief executive compensation with customer outcomes rather than relying predominantly on metrics such as premium growth, profitability and shareholder returns. This is among the most consequential governance signals issued to the insurance sector in recent years because it recognises a reality that policyholders have experienced for long: Insurance companies cannot continue rewarding financial expansion while treating customer distress as a secondary operational matter.

The Insurance Regulatory and Development Authority of India is right to push insurers towards metrics such as claims settlement quality, grievance redressal, disclosure transparency and overall customer experience. In insurance, it defines the legitimacy of the institution itself. A policyholder does not discover the true character of an insurer while signing a proposal form. That judgment arrives later, often during illness, financial vulnerability or distress due to a negative outcome.

Priority Imbalance
The regulator’s intervention matters because institutional behaviour ultimately follows incentives. If senior management is rewarded overwhelmingly for growth, distribution scale and quarterly profitability, organisations naturally optimise around sales velocity. Customer outcomes then risk becoming compliance exercises rather than governing priorities.

That imbalance has remained visible across sections of India’s insurance sector for years. Complaints relating to mis-selling, unsuitable products, opaque disclosures, delayed claims handling and prolonged grievance resolution have persisted despite repeated regulatory interventions. These concerns are now too widespread and too repetitive to be dismissed merely as isolated operational failures.

Insurance promoters and boards cannot plausibly argue that such patterns were invisible to them. The sector’s conduct issues have been commercially significant, structurally persistent and institutionally embedded. Mis-selling at scale rarely survives without organisational tolerance somewhere within the system. Many insurers benefited from rapid premium growth, rising embedded values, expanding distribution networks and stronger market valuations even as customer dissatisfaction remained persistently visible.

In reality, sections of India’s financial sector have spent years refining sophisticated models of mis-selling. Both banking and insurance increasingly mastered the art of pushing unsuitable products through incentive-heavy distribution systems while preserving the appearance of regulatory compliance. Consumers were often sold complexity wrapped as financial protection or wealth creation. Hopefully, regulators across the financial system now recognise that consumer trust cannot survive indefinitely if aggressive selling continues attracting limited institutional consequences. Errant brands that repeatedly compromise customer interests must face visibly stronger penalties.

The Shareholder Link
Yet linking CEO compensation with customer outcomes, while necessary, will not by itself produce durable behavioural change. Executive penalties matter, but institutions respond most decisively when economic consequences affect shareholder value and promoter interests directly.

IRDAI should therefore consider a stronger supervisory framework where material penalties arising from customer harm, repeated misconduct or regulatory breaches visibly erode shareholder capital. Such penalties should not disappear quietly within routine operating expenses or become manageable costs of doing business. They should affect profitability, capital strength, investor confidence and market valuation.

This distinction is critical because parts of the financial sector have historically discovered a commercially convenient truth: Aggressive selling often produces immediate growth while customer dissatisfaction imposes limited financial consequences. As long as customer mistreatment remains economically survivable, governance reform will remain partial.

Promoters and shareholders participated fully in the valuation gains produced by rapid premium growth and expanding distribution networks. It is therefore reasonable that they also bear financial consequences when customer harm becomes systemic.

Indian markets repeatedly demonstrate that promoters respond fastest to capital impairment and valuation pressure. Once supervisory action begins materially affecting shareholder wealth, internal institutional priorities also begin to change. Customer centricity then moves beyond annual reports and investor presentations into boardroom decision-making.

This is not an argument for punitive activism, but rather an argument for incentive correction. Insurance operates fundamentally on deferred trust. Customers commit long term savings today in exchange for a promise of future protection. When that promise repeatedly collides with opacity, procedural exhaustion or distrust, the damage extends beyond individual companies. It weakens confidence in the sector itself.

The Regulator Link
For many middle class Indian families, health insurance (as an example) has increasingly become associated not with reassurance but with procedural anxiety. Policyholders routinely confront exhausting pre-authorisation requirements, opaque exclusions, disputed claims interpretations and prolonged settlement disputes precisely when households are medically and emotionally vulnerable. The gap between the industry’s marketing language and the lived experience of many consumers has steadily widened. In public forums and insurance conferences, the sector often speaks of protection, care and customer commitment in near paternal terms. Yet countless policyholders continue to experience the system as adversarial at the moment they expected support.

This institutional gap cannot be viewed only as an industry failure. The regulator must also accept part of the moral responsibility for allowing such conduct frustrations to persist for years without sufficiently visible deterrence. Indian insurance regulation has produced detailed frameworks, circulars and compliance requirements, but policyholders have often struggled to see equivalent urgency in correcting everyday customer pain. A regulator ultimately earns public trust not only through rulemaking but through its demonstrated willingness to confront entrenched industry behaviour.

For years, insurance customers across product categories have voiced strikingly similar complaints. Yet the sector has not witnessed supervisory consequences strong enough to fundamentally alter institutional behaviour.

The regulator’s next challenge is therefore not merely drafting better rules. It is building a technically sophisticated, independent and assertive supervisory cadre capable of deep inspections, behavioural audits and data driven conduct oversight. Modern financial regulation increasingly depends not only on examining balance sheets but also on understanding how institutional incentives shape customer outcomes.

Globally, financial supervisors now examine whether compensation structures, sales targets and internal cultures encourage practices that may eventually harm consumers. India’s insurance regulator will require similar supervisory depth as the sector grows larger, more financialised and more deeply embedded within household savings.

Branding Exercise?
India remains significantly under-insured relative to the size of its economy and aspirations. It will require public confidence that insurers will behave fairly and policyholders do trust them.

Customer centricity cannot coexist with incentive systems that reward only growth while treating customer harm as commercially manageable. The test will be whether promoters and shareholders begin to internalise the financial consequences of failing policyholders.