IRDAI Enlists Auditors to Combat 'Dark Patterns' in Insurance Sales

The Insurance Regulatory and Development Authority of India (IRDAI) is intensifying its oversight of deceptive design practices known as 'dark patterns' used in digital insurance marketplaces. These practices manipulate consumers into sharing data or making unintended choices, undermining trust in the sector.

'Dark patterns' include tactics such as requiring excessive personal information to view product details, making subscription cancellations difficult, and using spam calls to push policies. The regulator aims to enhance transparency and protect consumers, particularly those new to insurance.

At an event in Mumbai on Tuesday, IRDAI Chairman Ajay Seth said, 'We need to look at it from their (consumer) perspective…to help make financial inclusion more understandable, more trusted, and more actionable. The keyword for me is more trusted.'

To monitor these practices, IRDAI has partnered with the statutory Institute of Public Auditors of India for a nine-month study. This follows an April directive requiring insurers to self-assess for dark patterns, to which most responded they had none. Seth noted, 'With that kind of a response, we have reached out to the Institute of Public Auditors of India to take up the study and also monitor over a period of nine months who has got dark patterns and who has not.'

Seth highlighted that many insurers demand excessive personal information before showing product details, hiding information behind complex processes. 'How do we communicate if people do not have a choice to go and know the products, the price, the performance? How do they take a decision?' he asked.

An analyst from a domestic brokerage, who spoke on condition of anonymity, said, 'While we have not yet spoken to many industry players, what we understand is that insurers might face some short-term problems if the regulations are tightened. After all, we do not know exact figures for how much of their sales are contributed by dark patterns and mis-selling. However, that impact will largely be inconsequential, and tighter norms would build trust for consumers and be good for the industry.'

IRDAI plans to release a consultation paper in July on reforms to insurance distribution. The paper is expected to address mis-selling across channels, improve transparency, and revise the commission-based distribution model.

These steps come after the Reserve Bank of India introduced a framework to curb mis-selling by banks, effective January 1. Seth acknowledged, 'I would like to acknowledge the good set of guidelines that the RBI has brought. They have done their piece. All those banks are also licensees of the insurance sector. Now it is our turn to bring in suitable guidelines for them.'

Dark patterns have been a concern since insurance moved online, eroding consumer trust. According to a survey by LocalCircles, about 80% of respondents reported issues such as hidden charges and difficulty in canceling policies. The regulator's actions aim to address these problems and build a more trustworthy insurance market.