Surrenders and withdrawals of life insurance policies rose in the 2025-26 financial year (FY26) and formed a larger share of total payouts than maturity benefits, the Reserve Bank of India (RBI) said in its Financial Stability Report (FSR), released on June 30, according to Business Standard. The report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on the resilience of the Indian financial system, and its insurance analysis sits within the chapter on the soundness and resilience of financial institutions, per the RBI. The central bank cautioned that surrender rates that stay elevated could point to policyholder dissatisfaction, product mis-selling, or competition from other financial products.
Surrenders and withdrawals accounted for 38.3% of total life insurance payouts in FY26, ahead of the 36.9% attributed to maturity benefits, Business Standard reported, citing the FSR. Death claims settled at 8.1%. The RBI tied the shift to challenges in matching insurers’ assets and liabilities. “The near parity between surrenders and maturity pay-outs indicates that policyholders are increasingly exiting policies prematurely. This shift has direct implications for asset-liability management (ALM), as early exits disrupt the long-duration assumptions underpinning life insurance investment strategies and can force asset liquidation ahead of schedule,” the central bank said, per Business Standard. Exits at scale can require insurers to sell assets ahead of planned timelines, changing the duration assumptions behind long-term portfolios.
The report identified distribution costs as a further risk, with higher acquisition costs narrowing underwriting margins for general insurers and raising the prospect of acquisition-cost-driven mis-selling among life insurers, according to Business Standard. For private life insurers, the commission ratio approximately doubled between 2021-22 and FY26 to reach 9.1%, while operating expense ratios held broadly steady. In general insurance, the private-sector commission expense ratio rose to 21% in FY26, moving ahead of premium growth, and the public-sector general insurance commission ratio reached 9.9%, up modestly over five years.
The commission trend intersects with a recent statutory change. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, introduced in the Lok Sabha on Dec. 16, 2025, and given presidential assent on Dec. 20, 2025, amends the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999, according to PRS Legislative Research. The Act empowers the Insurance Regulatory and Development Authority of India (IRDAI) to prescribe caps or specific limits and the modalities for commissions, remuneration, and rewards paid to agents and intermediaries, an analysis by Acuity Law noted, restoring a power the regulator had moved away from when it removed product-level commission caps in 2023. The government has said the amendments also give IRDAI authority to disgorge wrongful gains from insurers and intermediaries and rationalise penalties, per the Press Information Bureau.
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Grievances in the life insurance segment fell from a peak above 1,50,000 in 2021-22 to 1,20,000 in FY26, which the RBI associated with changes in market conduct, product suitability, and post-sale service, according to Business Standard. The general insurance segment moved the other way, with grievances nearly tripling to 1,78,000 in FY26. The RBI said the increase reflected shortcomings in claims management, service quality, and product communication, and added that unaddressed conduct risks could reduce policyholder trust, lower renewal rates, and become a financial stability concern over time.
The RBI framed the conduct and cost findings against a backdrop of balance-sheet strength. “The insurance sector continues to display balance sheet resilience with the solvency ratio of life insurers remaining above the minimum threshold,” the central bank said in its press release on the report. The findings position surrender behaviour, distribution economics, and grievance handling as areas insurers and supervisors are set to track as payout patterns and the commission framework continue to evolve.
