 "deposit insurance")
The Finance Ministry’s Department of Financial Services (DFS) has directed lenders to stop offering incentives on insurance sales to curb mis-selling, according to media reports. It has instructed financial institutions to sell insurance policies only based on customer needs and not link them to sales targets.
Mis-aligned incentives
Mis-selling occurs when incentives overshadow customer needs. “Bank employees are set targets for selling financial products, including insurance. Their incentives or commissions depend upon it. This creates unwarranted pressure, pushing bank employees to sell products that do not meet the customer’s needs,” says Shilpa Arora, co-founder and chief operating officer, Insurance Samadhan.
Insurance is often sold by a trusted bank employee, but that trust tends to be misused.
Rather than being sold as a risk cover, insurance is presented as a savings-cum-investment product. But it often does not deliver the promised returns.
Limited financial literacy worsens the situation. “People realise years later that they have paid premiums for a product that offered them very low returns,” says Santosh Joseph, chief executive officer (CEO), Germinate Investor Services.
Forms of mis-selling
To meet targets, bank staff push unsuitable policies. “Customers who visit bank branches are often pressured into purchasing insurance instead of fixed deposits. High returns are promised on these insurance products. Elderly customers are sold long-term life insurance plans that they do not require,” says Arora.
Mis-selling also occurs when customers are told insurance is mandatory for the approval of their home loan, personal loan, business loan, or overdraft facility. “When customers are in a hurry to get funds, they are vulnerable and hence agree to buy an insurance policy,” says Joseph.
Red flags to watch out for
Customers can avoid falling prey by spotting red flags. “They should become cautious if insurance is presented as mandatory for getting a loan, there is pressure to decide immediately, terms of the product are not explained clearly, or documents are not shared in advance for review,” says Rahul Sundaram, partner, IndiaLaw.
Customers should also beware if they do not understand the details of the product. “If you do not fully understand how the product works, and the person selling it does not give you written information or avoids answering your questions clearly, that is a red flag. Also be warned whenever a pitch feels too good to be true,” says Joseph.
Ask questions, don't hesitate
Before buying insurance, customers should assess their needs. “Ask yourself why you are buying this product—for protection or returns. Try to understand whether the product is suitable for your life stage and whether it can help you meet an important financial goal, such as children’s education or retirement,” says Joseph.
“Determine the type of policy that will best safeguard the asset that you wish to insure,” says K V Dipu, senior president and head – operations and customer service, Bajaj Allianz General Insurance.
Ask the bank whether insurance is mandatory for getting loan approval. Ask for a response in writing.
The customer may be required to pay multiple premiums on a product, but the bank’s staff may convey the impression that it is a single-premium product. “Customers must fully understand the financial commitment and the duration of payment required,” says Arora.
They should also ask if the policy can be cancelled or transferred if the loan is prepaid, and whether refund of premium for the residual term is possible.
Verify if the product is a pure insurance cover, or an insurance-cum-savings product. “Enquire about the returns you can expect, whether they are guaranteed, the death and other benefits. Ask about the risks involved and consider whether you can afford them,” says Joseph.
Understand the lock-in period and how easy it is to get your money back if needed.
Request brochures and read them thoroughly. “Get a written communication in the mail on the benefits that are being promised,” says Arora.
Sundaram recommends comparing products, reviewing terms in detail, and consulting a financial advisor.
What to do if you have been mis-sold?
Make use of the free-look period to cancel the policy. “The insured is allowed a period of at least 15 days (30 days in the case of electronic policies and those sold through distance mode) from the date of receipt of the policy to review its terms and conditions and to return it if it is not acceptable,” says Sundaram.
If the free-look period has passed, start by contacting the customer support services of both the bank and the insurer. “If the policy was sold through a bank branch, approach the branch head or the designated grievance officer. Explain the issue and request a resolution,” says Dipu.
If the issue remains unresolved, escalate the matter. “You can file a complaint with the insurance ombudsman, on the Insurance Regulatory and Development Authority of India’s (Irdai) Bima Bharosa portal, or file a case in a consumer court,” says Dipu.
Key points to know about seeking redress through ombudsman:-
- Lodge a written complaint with your insurer first; they must respond within 30 days
- If unsatisfied or there is no reply, approach the Ombudsman within one year from the insurer’s final response or the expiry of the 30-day period
- File complaint online (https://www.cioins.co.in), via email, or by post to the Ombudsman office
- Jurisdiction depends on your residential address or the insurer’s branch office
- Include: the complaint to the insurer, valid ID and address proof, insurer’s rejection letter, insurance policy copy, and relevant documents
- Legal representation is not allowed
- Hearings are held (in-person or via video) if needed; both parties present cases
- Ombudsman may mediate; if both parties agree, recommendation is made within a month. If accepted, insurer must comply within 15 days
- If mediation fails, final award comes within three months; insurer must comply within 30 days
- If you are dissatisfied, you can still pursue other legal remedies, like consumer courts
