How to nab a fraudulent agent

While Irda has made some serious efforts, it is quite a difficult proposition

Have you received a call from an “official of the insurance regulator”, asking you to surrender your existing policy and shift it to another insurance firm? You aren’t alone. Many others have also gone through the same experience – while some have complained to the regulator, others have forgotten about it; and the rest might have fallen for the bait.

In reality, the “official” is an insurance agent and is giving a good deal of headache to the Insurance Development and Regulatory Authority (Irda). Chairman J Hari Narayan says till November, Irda received 600 complaints on this issue alone. The regulator has already filed a police complaint.

Irda’s latest annual report shows a sharp increase in the number of complaints, primarily due to implementation of the Integrated Grievance Management System (IGMS). Under IGMS, the insurer has to declare complaints about issues related to the ‘promise of delivery made by the insurer’. The surge in complaints from 9,656 to 309,613 (in the case of just life insurance policies), clearly indicates a large number of policyholders are unhappy with their insurers, something that went unreported till now. As expected, the highest number of complaints are in conventional (traditional) policies, due to their increased sales. According to Ashvin Parekh, national leader-global financial services at Ernst & Young, it is because traditional products are way too opaque in their product design and charges.

Traditional products are even less transparent than Ulips. The charges under Ulips are also high but known. In the case of traditional plans, much of it is either not disclosed or are too confusing for the buyer. While buying endowment and money-back policies, one doesn’t know how much of the premium paid is allocated towards the savings and protection components. Due to this unawareness, mis-selling and malpractices thrive.

When a wrong policy is sold deliberately, it is mis-selling, whereas the material fact of a product not being disclosed to the customer is defined, as a malpractice. “Hence, it’s very difficult to distinguish as there is a thin line between malpractice and mis-selling, activities,” said Hari Narayan of Irda, adding that under mis-selling customers are conned and sold unsuitable policies deliberately.

The answer, according to Parekh, lies in the passage of the Insurance Amendment Bill, as it will give the regulator powers to impose penalties on the agent and the principal (insurer).

Other solutions include implementation of need-based selling and standardisation of the senior agent format. Need-based selling is where customers are expected to disclose their income projections for the short and long terms. While some insurers are doing their bit on this, there are many others who still find this process impractical.

The industry is also trying its bit. Many insurers have started giving a confirmatory call before issuing policies. Even though the policy is already sold, the customer’s confirmation that he’s happy with the policy gives additional assurance that there is no mis-selling involved. If they realise the customer isn’t happy, the insurer may advise him to return the policy within 15 days (free-look period). “Such confirmatory calls given by insurers are a step in the right direction, as many customers who have been mis-sold can be guided at the right time,” adds Hari Narayan of Irda.

However, here’s a catch. Many times, the buyer does not even know he has been sold an insurance product. They get carried away because many insurance companies are the arms of banks. The sales pitch: Sir, you will have to make a one-time investment and earn fixed deposit returns.” How does Hari Narayan catch this one?