Protection at the Point of Lending

Part 1 sets out the reforms. Part 2 publishes the cost data behind them. Four provisions reach insurance sold with a home loan.

IRDAI issued Recalibrating Economics of Insurance Distribution for public consultation in September 2026 [1]. Comments are due by 25 October 2026 (¶163, p76). The paper says that its Sections 10 and 11, on bundling and mis-selling, complement the Reserve Bank's June 2026 directions to banks and NBFCs on the sale of third-party products (¶14, p6) [3]. The regulator describes the reforms as taking forward those of 2016 and 2023: "continuity with course correction" (¶156, p72).

The payment rule can be read two ways, and the paper does not say which is intended. Read narrowly, ¶133(5)(c) applies only to the lower-rate package in which it appears (¶133(5), p58). Read with ¶126 and ¶128, which say that for all insurance the premium should move from the customer's own account, UPI or card directly to the insurer and that third-party payments should not be accepted (¶126, ¶128, p57), the direction is that a premium financed inside a loan disbursement is not the model the regulator wants. The RBI directions of June 2026 are less strict on this point: a bank or NBFC may fund a third-party product from the loan with the customer's explicit consent (para 85W). The IRDAI package safeguard contains no consent exception (¶133(5)(c), p58).

Twelve points of comparison. Easy already meets three. Six would change if the paper is adopted as drafted. Three are administrative or left unresolved by the paper.

Easy is registered with IRDAI as a corporate agent and distributes the products of one life insurer, one general insurer and one health insurer (Easy data). Three covers are offered with each home loan: group credit life for the loan tenure, a ten-year property policy and a five-year health policy, each as a single premium (Easy data). The premiums are added to the loan and recovered through the EMI (Easy data). The customer signs a consent form that records the cover as the customer's choice (Easy data). Field staff receive no incentive linked to insurance (Easy data). Exhibit 3 places each of these facts against the relevant proposal.

Two points in Exhibit 3 deserve a note. First, the RBI directions, effective 1 January 2027, already require that a customer who must hold cover as a risk mitigant may buy it from any provider, and that nothing is funded from the loan without explicit consent (paras 85V, 85W). Easy's consent form addresses the second of these. The IRDAI proposal goes further than the RBI on payment (¶133(5)(c), p58). Second, the group master policy that Easy already holds is the same structure the paper names as the permitted route for a lender that wants its portfolio protected (¶131, p58); what differs is who pays the premium.

Part 2 is a data paper. Its finding on lender-sourced credit life is specific.

The regulator's concern is the speed at which distributor pay-outs grew after the 2023 expense reforms, and where that growth concentrated. In a sample covering about 92% of corporate-agent premium, new business premium grew 28% between FY23 and FY25 while total distributor remuneration grew 125% (Part 2 Annexure 1 ¶1, p17). NBFC-sourced life premium rose from ₹3,600 crore to ₹10,300 crore over the same period, with pay-outs of about ₹4,300 crore, or 42% of premium (Annexure 1 ¶7, p18). About 93% of that business is single-premium group credit life sold at loan origination (Annexure 1 ¶8, p18). Commission on group credit life rose from about 5% to about 28%, and effective pay-outs to about 45% (Annexure 1 ¶8, p18). The same figures appear in Part 1 (¶45, p20).

The paper draws two conclusions. First, a product the borrower cannot shop for should carry a commission that recovers only "the cost of documentation and information processing", the principle it also applies to mandatory motor third-party cover (¶102(3), p47). Second, the economics should be visible: pay-outs disclosed, reconciled, certified by boards and audited where large (¶104–112, p53).

Part 2 does not report claim ratios for credit life, persistency for single-premium group cover, or what happens to borrowers after a death or a fire [2]. On property insurance, Part 1 says that cover is often "purchased only when mandated by banks or other lenders", that once the lending requirement ends homeowners have "limited desire to independently purchase or renew", and that this "creates a significant protection gap" (¶38–39, p19). That finding matters for the rest of this paper: for low-income households, the loan is at present the point at which protection is bought.

Regulators in twenty markets have answered four design questions. They agree on three and differ on one.

Lender-sold protection has been reformed in most large markets over the past fifteen years, usually after a mis-selling episode. The UK paid over £38 billion in payment-protection-insurance redress [6]. EIOPA's 2022 review of 145 European banks found bank commissions of 30–70% of premium on mortgage credit-protection insurance and single-premium structures in 32% of mortgage cases [5]. Australia's regulator found that consumers received 19 cents in claims for each dollar of premium on consumer credit insurance [20]. The Indian paper's figure of 42–45% effective pay-out on group credit life (Annexure 1 ¶7–8, p18) sits inside that range.

The reforms turn on four questions: may the lender require cover; may the borrower bring a policy from any insurer; where is the premium paid from; and is distributor pay capped. Exhibit 5 answers the four questions for twenty markets.

Where the markets agree

A lender may require protection on a mortgage. The EU directive [4], the UK handbook [6], France [8], Italy [9], South Africa [21], Brazil [14], Chile [16], Peru [17], Colombia [18], the Philippines [25], Singapore [23] and Hong Kong [27] all permit it. Brazil and Chile make life and property cover mandatory by law [14] [16]. Australia [19] and the United States [12] bar a lender from requiring credit life but allow it to require hazard cover on the property. Canada [13], Germany [10] and China [26] treat lender-sold life cover as voluntary. The Indian proposal, which prohibits any loan condition including property cover (fn 17, p58), is at the strict end.

The borrower may choose the insurer. The EU's "equivalent level of guarantee" test [4], France's right to switch at any time [8], Italy's rule that the bank must show two quotes and accept any policy [9], South Africa's waive-and-substitute right [21], Brazil's two-policies-one-unrelated rule [14] and Hong Kong's requirement that the approved list include unrelated insurers [27] all do the same job. The Indian proposal adopts the same rule (¶133(5)(b), p58), as do the RBI directions (para 85V).

Price is reduced through structure as well as caps. Chile requires lenders to tender their portfolio cover and bars them from taking a commission; life premiums fell 59.5% and fire premiums 24.2% in the first six months [16]. Colombia adopted the same tender model in 2014 [18]. The Philippines' housing fund moved from negotiated insurer pools to public bidding and cut the mortgage-redemption rate from 0.41 to 0.23 per 1,000 [25]. South Africa caps the cost to the borrower per R1,000 of loan and bans any mark-up above actual cost [21]. The United States sets credit-insurance rates to a minimum 60% loss ratio [12]. Where numeric commission caps exist they are 10% of single premium in Malaysia [22], 10% of premium in Indonesia [24], 20% of premium in Australia [19], and 2.5% of the loan amount in Germany [10].

Where the markets differ: the payment moment

South Africa requires a monthly premium inside the credit agreement for its duration [21]. Brazil collects the premium with the monthly instalment [14]. Mexico's Infonavit builds the cover into the monthly payment [15]. The Philippines' housing fund collects it in the monthly amortisation [25]. Peru allows it to be added to the instalment by agreement [17]. Canadian banks add it to the monthly payment [13]. Malaysia allows the premium to be financed into the loan [22]. The United States bars a creditor from financing a credit-insurance premium on a dwelling-secured loan, and in the same rule exempts premiums "calculated and paid in full on a monthly basis" [12]. Deferred-sale rules in the UK [6], Australia [19] and Germany [10] separate the insurance decision from the credit decision by days but say nothing about the source of funds. No market reviewed requires a mortgage borrower to pay a multi-year premium upfront from their own account as the price of a package.

The proposal asks the borrower to find the premium in cash on the day of disbursement, when the household has just spent its savings on the house.

Easy lends to EWS and LIG households. PMAY-U defines EWS as household income up to ₹3 lakh a year and LIG as ₹3–6 lakh [35]. Across affordable housing finance companies about 60% of borrowers are self-employed, and many salaried borrowers are informal-salaried with limited income documentation [36]. Easy's average sanction is about ₹11.7 lakh (Easy data).

Exhibit 7 shows the cash a borrower finds on disbursement day for a ₹15 lakh house financed with a ₹12 lakh loan: ₹3 lakh of margin money, stamp duty and registration of about 6% (Easy data; rates vary by state), and a processing fee. Today the three covers are single premiums added to the loan and recovered through the EMI; across Easy's portfolio they average about 3% of the loan, about ₹40,000 on this example (Easy data). Under ¶133(5)(c) the ₹40,000 would be paid from the borrower's own account on the same day (¶133(5)(c), p58).

What the evidence says happens when the payment moment moves

The field evidence on insurance for low-income households is consistent on one point: cash at the moment of purchase, not willingness to pay, is the binding constraint. Casaburi and Willis offered Kenyan contract farmers the same crop insurance at the same price, either paid upfront or deducted at harvest. Take-up was 5% under pay-upfront and 72% under pay-at-harvest. Allowing payment one month later raised demand by 21 percentage points [28]. Cole and co-authors, working in Andhra Pradesh and Gujarat, found that giving a household ₹100 rather than ₹25 at the offer raised the probability of buying rainfall insurance by 35 percentage points, and that households given a small cash transfer were more than twice as likely to buy [29].

Separating the insurance decision from the credit decision has the same direction of effect. When the UK required a two-day pause before add-on GAP insurance could be sold, sales fell 16–23% against the counterfactual, with prices only 2–3% lower [7]. Consumer credit insurance sales by eleven Australian lenders fell 71% between 2014 and 2018 as sales practices were reformed [20]. Those products were judged poor value by their regulators and the fall was the intended result; the point here is that the mechanism works on volume.

Two further results qualify the picture. Banerjee, Duflo and Hornbeck found that making a ₹525 health policy compulsory with microfinance loan renewals, with the premium financed, caused 16–23% of clients to leave the lender [30]; price sensitivity exists even when the premium is inside the loan. PMJJBY, a ₹436-a-year term cover auto-debited from a bank account, has enrolled 27.84 crore people [34]; low-income Indians buy protection when the amount is small and the payment is automatic. Both the size of the premium and the moment it is paid matter.

Credit life protects the family's claim to the house. Without it, the mortgage security still exists, and it is a bereaved household's home.

Easy's claims record gives the measure. Since the first loan in September 2018 the company has recorded 134 borrower deaths. 123 claims have been settled, four rejected and seven are in process. ₹7.50 crore has been paid: ₹7.32 crore cleared the outstanding loans and ₹18 lakh went to nominees where the cover exceeded the balance. The average settlement is ₹6.1 lakh. Insurers paid on average 17 days after the claim was reported; families took about ten weeks to report. All four rejections were for a pre-existing condition not disclosed at enrolment [38].

Two features of the record bear on the payment question. First, the rate. On the FY19–FY22 cohorts, now four to eight years old, 35 deaths have occurred on 2,171 disbursals, 16 per 1,000, and the count is still rising. Because the business MIS counts disbursals by tranche, the per-loan rate is higher. The FY23 cohort, three and a half years old, is already at 8 per 1,000 [38]. Over five years the experience is consistent with about 2 borrowers in every 100. Second, the timing. 56 of the 134 deaths (42%) came within the first year of the loan and 95 (71%) within two years; the mean interval is 1.5 years [38]. The cover is drawn on earliest, when the balance is highest and the household's savings have just gone into the house.

Property cover follows the same logic at a larger scale. India insures about 7% of its natural-catastrophe losses; between 2018 and 2022 uninsured losses were USD 32.9 billion against USD 1.1 billion insured [32]. About 1% of Indian homes carry home insurance [37]. The regulator's own finding is that the lending requirement is the reason the figure is not lower (¶38–39, p19). For most affordable borrowers, the ten-year property policy bought at origination is the only property insurance they will hold.

For the lender, the book remains secured in law and loses the layer that keeps it performing through the two events most likely to end an affordable borrower's repayment: the death of the earner and the loss of the asset. The paper's permitted structures exist because the regulator recognises this: a lender-paid group policy (¶131, p58), complimentary borrower cover (¶133(2), p58) and the lower-rate package with free choice of insurer (¶133(5), p58). Whether they can carry the protection that bundled single-premium cover carries today is the design question the consultation leaves open. The markets that kept borrowers covered while cutting distribution cost did so by changing who pays and how, not by moving the premium to cash at origination: Chile [16] and Colombia [18] tendered the cover; South Africa capped the cost per R1,000 and put the premium in the instalment [21]; Singapore's housing board collects it from the borrower's provident fund [23]; the Philippines' housing fund bids it out and collects it in the amortisation [25]; the United States bans financing but allows monthly payment [12].

The RBI rules take effect first. The IRDAI caps have no start date in the paper.

Section 17 of Part 1 lists 32 consultation questions (¶160, pp73–75). Three bear directly on this paper. Question 19 asks whether the proposed commission limits strike "a fair balance between policyholders' expectations of affordability and distributors' expectations of adequate remuneration" (¶160 Q19, p74). Question 24 asks whether "the illustrations of acceptable packaging of insurance with credit or loan" are appropriate (¶160 Q24, p74). Question 18 asks whether the sector is ready to move from insurer-paid commission to "a new arrangement of distribution based on fee paid by policyholders directly" (¶160 Q18, p74). Comments may be filed on the web portal, by Excel template or by email, by 25 October 2026 (¶162–163, p76).

The international record suggests three questions of design for the consultation: whether a monthly premium collected with the instalment satisfies "not out of the loan amount", as it does under the US rule [12]; whether a lender-paid group policy under ¶131 may be reflected in the loan rate (¶131, ¶133(5), p58); and whether a tendered or cost-capped group cover on the Chilean [16] or South African [21] pattern would meet the paper's objective without moving the premium to cash at origination. These are questions for the consultation. Easy's own response is addressed separately.