Insurance shares slip a day after RBI proposes tighter rules on financial product sales

Shares of major listed life and general insurance companies opened in the red on Thursday (February 12), a day after the Reserve Bank of India (RBI) released draft guidelines on the advertising, marketing and sale of financial products by regulated entities.

Investors appeared cautious about the potential impact of tighter distribution norms, particularly for bank-led sales of insurance.

At the opening, HDFC Life was down 1.18% at ₹692.65 apiece, SBI Life slipped 1.01% to ₹2,007.25 apiece, ICICI Prudential Life declined 1.01% to ₹634.45 apiece, and ICICI Lombard fell 1.17% to ₹1,909.20 apiece.

Why insurers are in focus

Banks are one of the most important distribution channels for both life and general insurance in India through the bancassurance model. A significant portion of new policies, especially protection and savings products, are sold via bank branches.

The RBI’s draft norms aim to curb mis-selling and aggressive cross-selling, which could slow the pace of policy issuance through banks in the near term. With stricter consent requirements and suitability checks, the sales process is likely to become more documentation-heavy and time-consuming, potentially affecting volumes in the short run.

What the RBI draft rules propose

The RBI has defined mis-selling to include the sale of unsuitable products, providing misleading information, selling without explicit customer consent, compulsory bundling of products, and any regulator-defined abusive practice.

Under the proposed framework, banks will be required to take explicit and separate consent for each financial product, with bundled consent being prohibited. One product cannot be made conditional on another, and banks must use separate application forms for every product or service.

Before selling any product, banks will need to assess its suitability and appropriateness for each customer, marking a shift toward more structured sales processes. The draft also brings Direct Selling Agents (DSAs) and Direct Marketing Agents (DMAs) under tighter scrutiny through mandatory eligibility checks, training, audits, and public disclosure by banks.

Agents operating inside bank branches must be clearly distinguishable from bank employees, and banks will be barred from presenting third-party products as their own. They must clearly disclose their role as distributors. The RBI has also proposed stricter advertising norms, requiring all communications to be factual, transparent on charges and risks, and free from misleading claims.

Additionally, the use of dark patterns — such as fake urgency, hidden charges, forced actions, or subscription traps — has been explicitly prohibited.

Implications for the insurance sector

Industry observers say the rules do not ban bancassurance but are likely to change how products are sold. In the near term, insurers may see slower policy issuance through bank channels as processes become more compliance-driven.

Some analysts also believe that clearer disclosures and reduced mis-selling could improve consumer trust in insurance products, which may be beneficial for the sector in the long run.

Next steps and timeline

The RBI has invited public comments on the draft guidelines until March 4, 2026, and proposed that the final directions take effect from July 1, 2026.