Finance ministry pulls up PSBs over mis-selling of insurance products

The finance ministry has advised public sector banks (PSBs) not to force-sell insurance products to customers and said such a practice impacts the core businesses of banks.

Banks have been asked to issue instructions to concerned vertical heads to put in a mechanism for avoiding unfair and unethical practices of selling life insurance policies to customers.

In a communication to banks last month, the finance ministry said, “Department has received a complaint that fraudulent and unethical practices are adopted by banks and life insurance companies (channel partners). It is for procuring life insurance policies from the bank customers.”

The ministry highlighted that the Central Vigilance Commission (CVC) has also cautioned about such forced selling as the quality of loans may get impacted due to such a practice.

“…it has been advised that a bank should not adopt restrictive practices of forcing customers to get insurance from a particular company. It was also conveyed that CVC has raised objections, as incentives for selling insurance products, brings not only pressure on the field staff but the core business of banking gets affected. And secondly, advances may get compromised in the lure of commission and incentives for staff,” the communication said.

Banks have been advised to ensure ‘100 per cent’ compliance of know your customer (KYC) guidelines while sourcing insurance business.
 

Last month, insurance regulator Insurance Regulatory and Development Authority of India (IRDAI) increased the number of corporate agents with which one insurance company can tie up for selling insurance products. Corporate agents can now tie up with nine insurers each in the general, life, and health insurance sectors.

In case of composite corporate agents, the total number of arrangements with life, general and health insurers should not exceed 27 at any point of time. IRDAI is pushing for reforms in the sector and is committed to the goal of “Insurance for all” by 2047. 

Keeping a check

• Ministry’s advice comes in the wake of complaint that fraudulent and unethical practices are adopted by banks and life insurers
• Central Vigilance Commission, too, raised objections regarding incentives for selling insurance products
• Ministry has now asked vertical heads of banks to put a mechanism to avoid unfair means  
• Ministry suggests ensuring 100% compliance of know-your-customer guidelines