Insurance unicorn Acko has already taken the step and announced commitment to "pure protection"to its insurance customers. As a part of this initiative, the company will disassociate insurance from investment.

For context, a large part of India's life insurance market is mixed insurance with investment products such as unit-linked insurance plans (ULIPs) and endowment plans. Pure insurance plans make up a fraction of the market.

While these mixed products promise hefty returns to the consumers, it often lacks transparency and higher premiums -- which alters the idea of having an adequate life cover.

Speaking on this, Acko founder Varun Dua said, "Investment-linked insurance products break that logic. They lure you with the promise of 'getting something back'. And because we're so enamoured by the idea of getting something, we find ourselves paying for nothing. Inflated premiums, inadequate cover and investment 'returns' that an FD would outperform."

Acko has decided to not mix insurance with investment to avoid alteration of protection "with 50 other benefits".

Other industry sources highlighted that companies will have to forgo a big chunk of their revenue if they are to comply with any strict regulations pertaining to pure life insurance products.

"The IRDAI has raised some concerns regarding the misselling of life insurance products, particularly because of the close ties between some banks and insurance companies. Most insurers will have to recalibrate their life insurance channels and reduce their reliance on mixed or investment-linked products," said one insider.

Will Separating Insurance From Investment End Misselling?

This will have a direct impact on their revenue and earnings as mixed or investment-linked products typically involve higher commission fees for insurers, as per those we spoke in the industry.

Another source highlighted that individuals are often left clueless about what they are buying when it comes to life insurance.

"This is why you see many users suffer delay in claims settlement and in many cases, they are not aware that this is not a pure insurance product but linked to investments. And worryingly, a number of insurance companies are being run by the same banks who sell investment products," they said.

Under the proposed rules of the Insurance Laws (Amendment) Bill, 2025, the regulator could bar common directorships between bank and insurance company boards. The industry has raised concerns that this could significantly impact board composition, governance structures, and the availability of experienced directors across the sector.

"The IRDAI wants to improve corporate governance and prevent conflicts of interest from fulfilling the core objectives of insurance as a financial service. But companies have conveyed to the authorities that such a blanket restriction may be impractical," said one source in the digital insurance space.

Insurers have suggested that instead of an outright ban, the industry favours enhanced disclosure requirements, conflict management frameworks, or conditional approvals for common directorships.

According to IRDAI data, in FY25, insurers in India cumulatively reported gross written premium of over INR 6.25 Lakh Cr through mixed or investment-linked (i.e other than pure protection) individual life insurance products, compared to just INR 17,950 Cr through pure insurance products. This predominance of mixed life insurance products - over 97% of the total life insurance market - is of great concern for the insurance regulator.

In its annual report for FY25, IRDAI flagged misselling as a significant concern and urged insurers to conduct a root cause analysis to identify the underlying causes. In particular it said that the share of unfair business practices-linked grievances in overall grievance records has increased to 22.14% in FY25, compared to 19.33% in FY24.

"To prevent or reduce mis-selling, insurers have been advised to implement strategies, such as assessing product suitability, implementing distributionB channel-specific controls and developing a plan to address mis-selling grievances, including carrying out a root cause analysis on a periodic basis," IRDAI said in its annual report.

While the industry could now be forced to finetune their sales pitch and approach to avoid misselling of insurance products, consumers continue to pay higher premiums for policies which demand 20-30 years of commitment.

Anecdotally, there is already some consternation among consumers. One Reddit user claimed that more than 50% of policyholders stop paying premiums within the first 5 years.

"When a policy is discontinued: A large portion of the money does not come back to the policyholder immediately. That money continues to sit with the insurance company and earn returns for the company. It should be called what it really is: a low-return investment system that profits from people's lack of financial awareness while pretending to insure lives," they added.

Yesterday, finance minister Nirmala Sitharaman tabled the Economic Survey 2024-26, which extensively spoke about Centre's vision of "Insurance To All By 2047". To fuel this agenda, IRDAI is implementing a series of regulatory reforms to empower policyholders. On ground, it is yet to be seen how the change of direction among the insurers will align with this ambition.

(Inputs from Nikhil Subramaniam)