India, Jan. 7 -- The Financial Stability Report 2025 of the Reserve Bank of India has some damning evidence on the Indian insurance industry. Its data shows that commissions as a proportion of costs have been rising for both life and non-life for the private insurers. When matched with the growing evidence of mis-selling in life insurance and the unwillingness of health insurance to pay individual claims, it points to a broken marketplace. While the problem is acute in insurance, there are worries of unsuitable products being sold in other parts of the retail market as well. The quick fix of banning a product or a distribution channel is not a long-term solution. India needs to be the first country to transition from a buyer-beware to a seller-beware market in retail finance. Only then will the household be a partner and not a victim of the financial sector. Caveat emptor, or buyer beware, is the default rule in markets for goods and services. This places the burden on buyers to inspect goods and services ahead of the purchase. Consumer protections are built in with regulations and disclosure. For example, a loaf of bread will have the ingredients and date of expiry printed on the packaging as the main disclosure, and the food regulator will certify that it is fit to be eaten. In such a market, where sales commissions are built into the price of the product, there is little conflict of interest at scale. However, the buyer-beware premise breaks down completely in retail finance products and services. There are five reasons for this. One, financial products are invisible and are described in the mind of the consumer by the seller. The seller then has the power to talk up the positives and hide the costs and risks. Two, the moment of truth can be far in the future. You know the bread is stale the moment you open the packet. But you will know the success of a pension plan 40 years later. Or the efficacy of a health insurance plan when you reach the hospital some time in the future. Three, disclosures in their current form are meaningless and have a limited impact on the consumer. Anybody who has tried to buy a medical insurance plan, or take a home loan, or avail of any other financial product can vouch for the fact that disclosures mean reams of legalese that will need degrees in law, finance, and futurology to decipher. Four, regulation does not work on the ground. India has multiple regulators that oversee different aspects of the market and investors are left bewildered between ABC Mutual Fund, ABC Pension Fund and ABC Insurance - which all sell similar products. Worse, regulators such as the Insurance Regulatory Development Authority of India (IRDAI) allow products that place agent livelihood and insurance firm profits over consumer safety. Five, financial literacy efficacy is limited and cannot be scaled in real time. It can at best warn people about what not to do, but the financial sector is always ahead. India can take a lead globally and move to a seller-beware market place. This does not mean assuring returns. This means two things. One, ensure that the product being sold does no harm. For example, a seller-beware world will prevent a recurring regular premium life insurance policy from being sold to an FD-seeking investor. Two, the product sold actually solves a problem. For example, suggesting a term life insurance plan to a 40-year old protection-seeking person rather than selling a unit linked insurance plan. We have forgotten that the entire industry that sucks in trillions of rupees of investor money is there to solve problems and not just enjoy commissions and bonuses. Two government reports (Swarup Committee and Bose Committee) have nailed the problem and suggested a roadmap to do this. How do we do this? There is a two-step process to implement a seller-beware market in retail finance. First, align the incentives of the producer and seller of financial products with the financial well-being of the individual. The incentive should reward the seller for the consumer having a good outcome. This is not difficult to do in finance. Right now the incentives, especially the insurance market, work against the individual. Second, ensure that the sales are suitable. Suitability would mean, for example, that a person with no emergency fund is not sold a risk product. Or an income seeking 70-year-old is not sold an endowment plan. Suitability ensures that consumer needs drive product sales and not only producer profits or seller commissions. Do we have evidence for this? Yes, right here at home. The Indian mutual fund industry has grown from Rs.1.3 trillion in 2013 to Rs.80 trillion in 2025 - that is an average annual growth of 21%. The SIP book is almost Rs.3 trillion a year. Every month, almost Rs.30,000 crore rolls into the stock market on Rs.2,000 SIPs. Nowhere else in the world do we see this retail behaviour in a risk product. But, this is not an accident; it is policy design that has played out over a 20-year period. Of the two steps above, only the first has been implemented - incentives have been aligned so that the producer and seller do well when the investor's money grows. In addition, the regulator has built both transparency and lower costs into the product. Just this, without even the suitability criterion in place, has given flows that are so strong that policy mavens are worried about the ability of the Indian stock market to keep absorbing these flows. As India welcomes millions of people to formal finance, with their first bank accounts mostly mediated through the Jan Dhan programme, we cannot afford to have the financial pipelines carry toxic products and sharp-sales practices to a population that is totally unprepared for it. Finance is supposed to solve problems and not prey on households. A seller-beware market will ensure that retail finance is no longer played like a zero-sum game where the household has to lose for the financial sector to win. India should go for the win-all model....