Wednesday, September 6, 2017

Mis-selling of insurance products by the banks are on the rise

Kolkata, September 4:  Septuagenarian Anusua Basu wanted to make a one-time investment of Rs. 1.5 lakh in an equity-linked savings scheme (ELSS) for tax gain. She paid the amount and was ready to wait for the three-year lock-in period to get over to earn her returns.

She was, however, in for a shock when her account was debited for Rs. 1.5 lakh the second year as well.

On receiving the premium renewal notice the second year, she realised that her bank had sold her a ULIP instead. When she went to the bank looking for the relationship manager who sold her the policy, she was informed that the person concerned had moved out.

Anusua is not alone. Instances of mis-selling of insurance products through bank branches are on the rise. Customers easily give in to the aggressive marketing techniques of some bank employees primarily on account of the trust reposed on the bank they have been banking with. Though there is no official data on the number of policies mis-sold, calls made to banking and insurance ombudsman offices in Mumbai, Kolkata, Chennai and Ahmedabad confirm there is a rise in complaints from people on mis-selling by banks.

Mis-selling refers to certain ‘unfair business practices’, including wrong sale of product, loading on products and promise of higher returns. “The number of complaints from people about mis-selling by bank branches has increased. However, a complaint may not necessarily mean that the product was always mis-sold,” a banking ombudsman officer from Mumbai told BusinessLine on condition of anonymity.

Mis-selling expected to rise:

According to industry experts, instances of mis-selling are expected to rise in future with banks and insurance companies going aggressive on the bancassurance channel, more so under the open architecture model, unless attention is paid to developing simpler products and equipping bank employees with adequate knowledge and infrastructure.

Under open architecture, a bank can have tie-ups with up to three insurers — in each of life, non-life and health segments.

“Mis-selling is prevalent in almost all kinds of channels, but the open architecture model will throw up more challenges,” said P Nandagopal, Founder and CEO, Insurance Inbox.

Aggressive push:

With the Insurance Regulatory and Development Authority of India (IRDAI) issuing guidelines on open architecture in 2015, banks and insurance companies have been looking at this segment aggressively to scale up their business.

While on the banks’ part it is a way to earn fee-based income, for an insurance company this would mean better penetration across the country, including the rural markets.

Need for simpler products:

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