The Centre has tightened regulatory enforcement in the insurance sector by increasing the maximum penalty for violations tenfold—from Rs 1 crore to Rs 10 crore—and by granting the regulator powers to order
disgorgement of wrongful gains, according to the Economic Survey 2025–26.
The enhanced authority has been vested in the Insurance Regulatory and Development Authority of India (IRDAI), allowing it to direct insurers and intermediaries to return unlawful profits arising from regulatory breaches, mis-selling, or failure to comply with statutory norms.
This marks a significant step-up in supervisory oversight, aimed at improving market discipline and strengthening protection for policyholders. Under the revised framework, insurers violating provisions of the Insurance Act or the IRDAI Act can now face penalties of up to Rs 10 crore, compared with the earlier cap of Rs 1 crore.
Insurance intermediaries—including brokers, agents, and other distribution entities—have also been brought clearly within the ambit of these penal provisions, expanding accountability across the sector’s value chain.
The Survey highlighted that the twin approach of steeper monetary penalties and disgorgement powers is designed to serve as a strong deterrent against misconduct, especially in cases of mis-selling, unfair trade practices, governance failures, and systemic non-compliance.
Disgorgement allows the regulator to strip violators of any financial gains derived from wrongdoing, ensuring that regulatory breaches do not remain merely a manageable cost of doing business.
