When septuagenarian D. Mukherjee walked in with his cancer stricken wife to collect his fixed deposit from Union Bank of India, he was not aware what was in store for him. Not only the bank manager and the insurance agent sold them an IndiaFirst Life insurance policy by calling it a “pension scheme,” they also coaxed him to divert the entire proceeds of the fixed deposit to IndiaFirst Life Insurance account as insurance premium. He was told that his daughter will be the nominee in case anything happened to him and immediately her Aadhaar details were sought. It was only later, Mukherjee found that the insured person was his daughter and their entire fixed deposit savings was siphoned off for the insurance policy.Despite shooting letters to the top management of Union Bank of India and IndiaFirst Life Insurance, the Insurance Regulatory and Development Authority (IRDAI), the insurance regulator, and the insurance ombudsman on misselling, Mukherjee is still awaiting justice.Mukherjee is not the lone victim in the ongoing mad scramble to sell policies by the insurance companies. The Irdai data says misselling constitutes the highest percentage of customer grievances against insurance companies. The insurance industry would prefer to call such cases unfortunate exceptions. The regulator’s own numbers suggest otherwise.Irdai has acknowledged in its latest annual report that misselling is a “significant concern.” Complaints relating to unfair business practices – the category under which mis-selling is recorded – rose to Rs 26,667 in FY25 from Rs 23,335 a year earlier. Their share in total grievances against life insurers climbed to 22.14% from 19.33%. In other words, more than one in every five complaints received by life insurers is now linked to how a policy was sold rather than how a claim was settled. In its annual report, Irdai says misselling in the Indian insurance sector is a significant concern that involves the sale of insurance products to consumers without proper disclosure of terms, conditions or suitability. Irdai further says insurers are encouraged to tackle the problem of misselling by conducting a root cause analysis to identify the underlying causes. To prevent or reduce misselling, insurers have been advised to implement strategies such as assessing product suitability, implementing distribution channel-specific controls and developing a plan to address mis-selling grievances including carrying out a root cause analysis on a periodic basis, the Irdai says about the high numbers.Those numbers should have triggered alarm bells across the financial system and at Irdai. Instead, they have been treated as just another statistical footnote in an annual report.Only person who bears consequences of a bad sale is the customerThe uncomfortable truth is that India’s insurance sector suffers from a problem far bigger than misselling. It suffers from the normalisation of misselling. (Misselling refers to the sale of insurance products to consumers without proper disclosure of terms, conditions or suitability.)Consider the incentives. Insurance companies reward distributors for selling policies. Banks earn commissions from distributing insurance products. Relationship managers are given targets. Agents are compensated for volumes. Everyone in the chain gets paid when a policy is sold.The only person who bears the consequences of a bad sale is the customer.That is why retirees walk into banks to renew fixed deposits and emerge holding complex insurance policies. That is why products are routinely described as pension plans, guaranteed-return schemes or savings instruments while crucial details are buried in lengthy documentation. That is why senior citizens are persuaded to liquidate lifetime savings for products they neither need nor understand.The industry often argues that India suffers from low insurance penetration and therefore requires aggressive distribution. That argument misses the point entirely.The objective of financial inclusion cannot be achieved through financial deception.India’s insurance penetration remains stuck at 3.7% of GDP, significantly below the global average. Yet the answer to low penetration cannot be to pressure customers into buying products under false pretences. A policy sold through misrepresentation may boost quarterly premium collections, but it destroys long-term trust in the system. Conflict should have attracted far greater scrutinyWhat makes the situation particularly troubling is the role of banks.For millions of Indians, especially older savers, the bank manager remains the most trusted financial adviser. Unlike a stockbroker or a mutual fund distributor, a bank officer is perceived as a custodian of savings. That trust creates enormous influence.When a bank employee recommends a financial product, many customers assume the recommendation is being made in their interest. Increasingly, however, banking halls have become sales floors where deposits, insurance policies and investment products compete for attention based on commission structures.The conflict is obvious. A fixed deposit renewed generates little income for the bank. A life insurance policy often generates substantially more. Besides, insurance agents attached to bank branches often pass on part of the commissions generated from selling insurance to bank officials.That conflict should have attracted far greater scrutiny from regulators than it has.The Irdai deserves credit for publicly acknowledging the problem. It has directed insurers to conduct root-cause analyses, assess product suitability and implement distribution-specific controls. These are sensible recommendations. The problem is that recommendations are not enforced. A regulator that repeatedly identifies the same problem year after year but continues to rely primarily on advisories risks appearing more concerned with documenting misconduct than preventing it.The same criticism applies to the insurance ombudsman system.In theory, the ombudsman exists to provide a simple and inexpensive mechanism for policyholders seeking justice. In practice, many consumers find themselves trapped in a prolonged process involving insurers, grievance cells, ombudsmen and regulatory platforms. By the time a decision is reached or an email is even acknowledged by the Ombudsman, the customer may have spent years pursuing relief. The Ombudsman position itself has now become a retirement parking spot for the insurance sector employees.For an elderly policyholder who has lost retirement savings, a delayed ruling offers little comfort. Justice delivered after financial ruin is not consumer protection.The regulator’s own data raises uncomfortable questions. Of the unfair business practice complaints resolved during FY25, more than 15,000 were decided against policyholders, while only around 11,400 were resolved fully or partially in their favour. Whether every one of those decisions was correct is not the issue. The issue is perception. When mis-selling complaints continue to rise and yet large numbers of complainants fail to secure relief, public confidence in grievance mechanisms inevitably weakens. A more fundamental question needs to be asked: Why does the burden of proof remain largely on consumers?In many cases, insurers possess call recordings, proposal forms, transaction trails, video confirmations and sales records. Yet when disputes arise, customers often face the difficult task of proving that a product was misrepresented to them as everything the agent and bank officials say is verbal.The presumption should be reversed.If a senior citizen claims that a fixed deposit was converted into an insurance product without informed consent, the insurer and distributor should be required to demonstrate clearly that suitability assessments were conducted, disclosures were explained and consent was obtained in a meaningful manner.Consumer protection cannot rely on paperwork alone. Anyone who has spent time in a bank branch knows that signatures are often collected far more efficiently than informed consent.The deeper issue is that India’s regulatory architecture still measures success largely through growth metrics. More policies issued, more lives covered and higher premium collections are celebrated. Persistency ratios, complaint patterns and customer outcomes receive far less public attention.That creates a dangerous incentive structure.A policy that lapses after a few years because the customer never understood what was purchased should not be counted as a success. A retiree who surrenders a policy at a steep loss should not be viewed as evidence of expanding insurance penetration. Growth achieved through unsuitable sales is merely future grievance generation.The insurance industry likes to describe itself as a business built on trust. That description is accurate. Insurance is fundamentally a promise — a promise that a company will stand by a customer during moments of illness, death, accident or financial distress.But trust is built long before a claim is filed. It begins at the point of sale.Every customer who discovers that a pension plan is actually an insurance policy. Every retiree who loses savings to surrender charges. Every family that spends years navigating grievance forums. Each one weakens confidence not only in a particular insurer but in the entire financial system.The tragedy is that India genuinely needs a stronger insurance sector. Millions remain underinsured. Households need protection. Long-term savings need productive channels. Yet the industry’s growth ambitions will ultimately collide with a simple reality: people buy insurance only from institutions they trust.The story of Mukherjee is therefore not just about one policyholder. It is an indictment of a system that continues to reward sales over suitability, volume over transparency and growth over accountability.Until regulators and ombudsmen move beyond issuing advisories and start delivering swift, visible and meaningful consequences for mis-selling, customers will continue to pay the price.And the insurance industry’s biggest risk will not be mortality, longevity or market volatility.It will be the steady erosion of trust.Dev Chatterjee is a senior journalist and co-author of The Meltdown and India Inc’s Greatest Turnarounds.