Policyholders to benefit from Irdai move

Banks and corporate agents will do more checks to ensure the right product is sold

The next time you step into a bank branch, the relationship manager might not try to sell you an insurance policy that isn’t suitable for you. If at all you are sold a policy, it will be after a thorough analysis of your financial needs and goals. After all, the bank wouldn’t want to be held guilty of mis-selling.

According to data from the Insurance Regulatory and Development Authority of India (Irdai), as of March this year, there were 278,992 complaints against life insurance companies. Of these, 52 per cent were related to mis-selling.

Recently, Irdai Chairman T S Vijayan said banks and their employees would be held liable for all insurance policies sold by them. Corporate agents, including banks, would be considered intermediaries. Currently, banks sell products of a one life and a general insurance company, under the bancassurance platform. They act as corporate agents of insurance companies. In case of a mis-selling complaint, the insurance company is held liable, not the agent. But if Irdai’s proposal is implemented, the onus of selling insurance products that align with customer needs will be on banks.

While lauding the regulator’s move as a step towards improving customer service, experts feel implementation might not be easy. Allowing banks to sell insurance products of three companies each — in the life, general and health segments — will ensure banks act as brokers and are, therefore, more responsible towards customers. “The regulator is trying to push corporate agents (in this case, banks) into becoming brokers. In some way or the other, there is mis-selling by banks due to the lender-borrower relationship. But, it is a challenging proposition to make banks liable for mis-selling because that would mean having to alter an insurance contract. In the contract, the principal (the insurance company) is liable for mis-selling, not the agent. So, it needs to be seen whether law will permit this change,” says Ashvin Parekh of Ashvin Parekh Advisory Services.

Anuj Mathur, chief executive, Canara HSBC Oriental Bank of Commerce Life Insurance, says banks have to ensure rigorous controls during sales and an insurer has to have checks and balances to validate the transaction. This will ensure customers understand the products bought.

Girish Kulkarni, managing director and chief executive of Star Union Dai-ichi Life Insurance, says it is too early to say whether making banks responsible for mis-selling in case of complaints in the corporate agency model is a solution or not. “In the bank-corporate agency model, sales are largely supplemented by the staff of life insurance companies. They have domain expertise and can deal with more informed customers. Therefore, the complaint percentage is comparatively lower than in other modes of distribution,” he says.

Vighnesh Shahane, chief executive of IDBI Federal Life Insurance, says making banks responsible for mis-selling could deter them from selling insurance, as this isn’t their core product. An option is to focus on improving the sales process and the persistency ratio, as this will help reduce the number of complaints, he adds.