IRDAI Imposes ₹5 Crore Fine on Policybazaar for Regulatory Violations
Introduction
Policybazaar Insurance Brokers Pvt. Ltd. a wholly owned subsidiary of PB Fintech Ltd. has been penalized by the Insurance Regulatory and Development Authority of India (IRDAI) to the tune of 5 crores, due to various infringements of insurance laws. The fine which was announced on August 4, 2025, is after a remote inspection by IRDAI in June 2020 that revealed governance, product promotion, premium remittance, and outsourcing lapses. This paper gives a detailed account of the violations, the regulatory action, the position of the company, and the overall implication of the insurtech industry, besides concerns voiced on social media such as X to the foreign ownership structure of Policybazaar.
Background of the Case
Since its launch in 2008, Policybazaar, one of the most prominent online insurance aggregators of India, has served as a massive disruptor of the digital insurance market through the facilitation of more than 42 million policies. As of the inspection date (June 1-5, 2020), Policybazaar was an Insurance Web Aggregator (IWA) and only had to be completely neutral in listing and comparing insurance products without selling or advising. Policybazaar changed to composite broker license in February 2024, which authorized it to distribute and sell policies. But the violations mentioned against IRDAI are in its operations in the IWA regime, which was under the Insurance Act, 1938, and the IRDAI (Insurance Web Aggregators) Regulations, 2017.
After the inspection, the IRDAI served the Policybazaar with a show-cause notice on October 7, 2024, with 11 regulatory non-compliance charges. Following a personal hearing and other submissions by the company, IRDAI came to the end of its inquiry and announced the 5 crore fine, five of the charges being fined 1 crore and the remaining six leading to warnings, advisories or corrective directions. The company has been directed to submit the order to its board and further submit action-taken report within 90 days after which the penalty is to be remitted within 45 days. Policybazaar has the right to challenge the order to Securities Appellate Tribunal (SAT).
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1. Prejudiced Product Promotion
Another serious infringement was the policy of Policybazaar to feature some of the chosen insurance products as the so-called top or best on its web-site without any transparent criteria or third-party data to follow the ranks. As an example, the regulator mentioned in the June 2020 inspection that five Unit-Linked Insurance Plans (ULIPs) offered by Bajaj Allianz, Edelweiss Tokyo, HDFC, SBI Life and ICICI were presented as top-rated without any apparent methodology or disclaimers. This was considered misleading practice, as this made some insurers visible more than others, and this might affect the choices made by the consumers and contravene the fair disclosure norms of IRDAI. The absence of objective comparison devices limited the customers in making informed decisions, which led to a 1 crore penalty.
2. Lagged Premium Remittance
PolicyBazaar was also discovered to have failed to transfer customer premiums to insurers within the stipulated time contravening Section 64VB of the Insurance Act 1938 that requires intermediaries to remit premiums within 24 hours of its receipt. There were considerable delays identified in the inspection as 67 of the sampled policies were delayed by more than 30 days, 8,971 policies were delayed by 5 to 24 days, and about 77,033 policies were remitted after three working days. These delays were caused by Policybazaar using its own payment gateway and nodal account to ensure an additional processing time. Such practice is a systemic risk since insurers cannot take a risk until premiums are received and this may leave policyholders uncovered during the delay period. This violation resulted into a 1 crore fine.
3. Unauthorized Directorships
IRDAI discovered that some of the key managerial personnel (KMPs), the principal officer also included, were directors of other firms, without prior authorization of the regulator, which violated exclusivity requirements. This had led to concerns of conflict of interest, whereby top managers might be able to manipulate various stakeholders within the insurance ecosystem, thus affecting neutrality. This lapse was recognised by Policybazaar in its November 2024 personal hearing and it attested that its current KMPs and main officer do not currently have external directorships. This infringement drew 1 crore fine.
4. Unpredictable pay of outsourcing
During the inspection it was found that Policybazaar had irregularities in its outsourcing deals with the insurers, specifically in telemarketing and call center services. Contracts were not transparent with payments being made in most cases on a per seat basis without any proper rationale or specific scope of services. As an example, Policybazaar outsourcing charges have been 104.59 crore in FY 2019 20, of which 24.81 crore was spent on workstation costs only in March 2020. There was no objective criteria of pricing leading to question on the fairness and compliance, which was punished by a 1 crore rupee penalty. After the hearing, Policybazaar filed that it has abolished such outsourcing dealings.
5. Negative mapping of Telemarketing sales
Many of the policies sold in the telemarketing activities of Policybazaar (nearly one-fourth of the above 4.3 lakh policies) were not assigned to Authorized Verifiers (AVs), who are supposed to oversee the compliant business procedure. Also, Policybazaar has not been able to produce call records and audit trail of numerous transactions due to system retrieval issues. This unaccountability posed the risk of mis-selling and a penalty of 1 crore was given. To deal with this situation, IRDAI instructed the company to conduct an external audit by a chartered accountant.
6. Other Lapses
Other violations that were not associated with monetary fines but expressed through advisories and cautions were:
- Excess Commissions: Policybazaar had paid commissions higher than those prescribed by IRDAI and it is due to delay in reconciliation.
- Poor Call recording systems: It was not possible to provide call recording and this was an obstacle to sales verification.
- Licensed Insurance Agents: A number of AVs were identified to be licensed insurance agents, which is not in compliance with norms.
- Ownership of the domain name: Policybazaar.com was owned by PB Fintech and not IWA and had paid 15.51 crores and 25.79 crores in license fee to the holding company in FY 201819 and 201920 respectively. This was not an arrangement that was approved by the IRDAI.
- Clientele Diversion: The traffic of Paisabazaar.com, a subsidiary company, was redirected to the Policybazaar site without the permission of the regulators and this is bringing suspicion of unauthorized promotion on cross platform.
Policybazaar’s Response
As part of a stock exchange filing, PB Fintech claimed the 5 crore penalty would not affect the operations of Policybazaar or any other activities. The company pointed out that the offences were committed when it was in IWA and corrective action has been taken such as abandoning problematic outsourcing agreements and having the KMPs relinquishing directorships in other companies. Policybazaar has undertaken to place the IRDAI order in front of its board and file a report on compliance within 90 days. In spite of the fine, PB Fintech posted a robust Q1 FY26 performance with a 41 percent year on year growth in profit after tax to 84.7 crore and a 34 percent rise in operating revenue to 1348 crore, courtesy a 36 percent rise in insurance premiums to 6,616 crore.
Public and investor reaction
The penalty price announcement caused the share price of PB Fintech to drop and it lost as much as 3 percent on the Bombay Stock Exchange, closing at 1, 781. 95 on August 5, 2025. Social media on X were ambivalent with some users criticizing the breaches and others criticizing the foreign ownership of Policybazaar, which the order issued by the IRDAI has not clearly addressed. Although some X users wondered whether the functioning of Policybazaar was affected by the foreign investors, there is no direct indication of the inspection that the violation resulted in its ownership structure. PB Fintech is an exchange-listed company that has a large foreign institutional investment base, but only operational and compliance failures in the IWA period are highlighted in the action by the regulators.
The implications to the Insurtech Sector
This 5 crore fine is one of the biggest ever to be fined to a digital insurance intermediary which highlights the seriousness of IRDAI in enforcing compliance given the burgeoning online insurance market in India, that is worth more than 1 trillion dollars. The contraventions address the important points of concern among digital aggregators such as product promotion transparency, remittance of premium in time, and good governance. In the case, consumers should understand that it is necessary to check the policy activation procedure with insurers themselves and trust objective data instead of promotion markers such as top or best. The actions of IRDAI are an indication that no one is above the law, and this might lead to other aggregators improving their internal mechanisms.
Foreign Ownership Issues
The topic of X has also questioned the aspects of foreign ownership structure by Policybazaar, and some of its users have indicated that this aspect might affect its operations practices. Nevertheless, foreign ownership is not mentioned in the violations in the order issued by IRDAI. As a publicly listed company, PB Fintech is in compliance with the foreign direct investment (FDI) laws of India which permit a maximum of 100 per cent FDI in the insurance intermediaries through the automatic route with the concurrence of the regulators. The penalty is concerned with the lapses in operations and not ownership and there are no regulatory conclusions that directly relate foreign investment and the quoted violations. Individuals who want to know more about this topic as consumers and investors should consult the official statements of IRDAI and the disclosures of PB Fintech.
Conclusion
The 5 crore fine given by IRDAI to Policybazaar is evidence of the strict nature of the regulator in the aspect of consumer protection and compliance within the digital insurance space. Even though Policybazaar has acted upon the gaps, and its activities are not affected by this, the case demonstrates that in the insurtech industry, it is important to be more transparent, accountable, and follow regulatory standards. The consumers should be reminded of the need to be diligent when buying insurance online as they should clarify policy specifications with the insurers, rather than placing their trust on the promotional rankings. In the wake of this regulatory blow, the response, as well as the way Policybazaar will comply in the future, will be keenly observed not only by investors but also by the regulators and general population.
Sources: India Today (August 5, 2025), Business Standard (August 5, 2025), Outlook Money (August 5, 2025), Moneycontrol (August 5, 2025) and posts on X.
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