Later on, the customer realizes that he or she do not have any more spare cash to get a proper protection insurance. CPF has a rather strange way of calculating interest. This results in a significant exposure to risk. One of my client recently got an interesting message about offer to invest in insurance plan and he forward the same message to me. In the case of Ulips, where the surrender costs have been reduced to a bare minimum and the overall charges have been capped, commissions have by default taken a beating. After he quit the company in July 2012, he started fighting alleged mis-selling by helping aggrieved customers fight the battle. For ILP, nothing is guaranteed. The mis-selling in insurance has gone on for just too long and nothing has been done. While the previous regulations hard-coded the remuneration structure to intermediaries, the Insurance Laws (Amendment) Act, 2015, gave enough freedom to the insurance regulator to revisit insurance commissions. “The two important customer service metrics of persistency and grievance ratio have improved over the years. That case was quashed by the Rajasthan High Court on 16 January 2018. ", 'What are the retirement planning methods? Copyright © HT Digital Streams Limited All rights reserved. The ILP can be as long as 20 to 25 years maturity plan. Often, the intermediary does not fully explain the policy details to the customer. Insurance companies to offer a standard term life insurance from January 1, 2020 brought standardization, digitization to insurance sector, SBI General Insurance conducts awareness drive for farmers in 50 villages, Bajaj Allianz allows senior citizens to submit Life Certificate via video call, The spat between ICICI Pru Life Insurance and its former employee reveals a larger industry problem, Front-end commission structure and high exit cost contribute to mis-selling in insurance. 28, July 2009 by Wilfred Ling Leave a Comment. The customer often is just a young graduate from school and would be attracted to a “saving plan” but under such circumstances, the priority for such a young person is to get protection, not saving. The grievance ratio in FY19 of 72 grievances per 10,000 retail policies issued in FY19 is well below the private industry average of 83 grievances per 10,000 retail policies issued," said the spokesperson. According to Balchandani, he had assigned two unit-linked insurance plans (Ulips) to himself as he was bullish on the performance of the funds the Ulips were tied to. Misselling can lead to fines and professional censure. Mis-selling is not unique to insurance and happens in various lines of businesses (loans, credit cards, investment products, pharmacy, hospitality etc. There is none if surrendered at 18th month. The illustration basically shows how your (policyholders) insurance policy will perform over a period of time. Insurance customers could be in line for compensation after city watchdog probe finds evidence of agents mis-selling, faking signatures and falsifying documents This is quite easily achievable. While Balchandani crossed over to the other side to champion the cause of aggrieved customers of bundled plans, in his previous avatar as a customer service manager, Balchandani wasn’t completely above board. They mis-sell insurance policy by making false commitment to you. The fact that life insurance policies are prone to mis-selling is now a well-documented fact, and with a fat commission structure that’s also front-loaded, intermediaries selling these plans have very little to lose. ), but Insurance being an intangible service – the principle of Caveat emptor prevails in insurance. To get 4 customers, the closing rate just need to be 1%. The unsuspecting public would often be approached by an insurance salesperson who will propose an insurance product as saving element. Reliance General Insurance company has the responsibility to put in place proper procedures and effective mechanisms to address complaints and grievances of policyholders including mis-selling by different intermediaries and to ensure compliance with the statutory requirements. It is mis-selling if only half truth is communicated to the client. An ICICI Bank spokesperson told Mint that the bank has stopped selling traditional bundled products for the last two years. Balchandani has taken on the battle head on, but the incident exposes the cracks in insurance regulations with regard to sales practices that continue to allow a front-loaded commission structure. The balance ₹2 lakh had to be kept in the form of a fixed deposit (FD)," alleged Balchandani. Your session has expired, please login again. Mis-selling of insurance products not only diminishes customers’ faith and confidence in insurance but also seriously weakens the business of insurance companies because if mis- selling is proved then an insurer will have to compensate the customer. Since the money was parked in a traditional insurance policy, surrendering the plan after a year meant the policyholder, the farmer in this case, wouldn’t get any money back. He went on to file a public interest litigation (PIL) in 2018, where he listed out specific instances of alleged mis-selling. Don't think that there is no misselling in non-life insurance. Since nobody will be punished, this continues to be practiced widely. Irda has been increasingly using these powers to check mis-selling," said RBI. A basic example of misselling would be a person with no dependents being manipulated into buying life insurance. It involves selling of insurance products either by hiding facts or giving false information to the buyers. Misselling of insurance is a big problem in the industry. Typically they will go after those who can afford to invest about $2000 to $3000 per month. Normally, the agents / intermediaries lure customers with unrealistic benefits of the policy. This is followed by mis-selling of health insurance policies by brokers and agents on behalf of non-life insurers. It is for this reason that despite regulatory reforms, the insurance industry has not been able to improve persistency of customer by a huge margin. Time and again, there have been instances of grave mis-selling in the insurance industry that necessitates a serious relook at product structure and front-loaded commissions. I... iFAST Monthly Investment Update -July 2020, Navigator Newsletter_June 2020 (36 pages), iFAST Monthly Investment Update -June 2020 (21 pages), Fortitude Budget – Save, create jobs and be post-pandemic ready, PPAM Quarterly Market Outlook 1Q2020 (17 pages), Strange way of how CPF Interest is calculated & retirement planning. The customer would than sink in a huge amount of money into the saving insurance. The PIL also draws attention to the pressure within banks to meet third-party targets such as sale of insurance policies. According to Chopra, aggressive revenue targets without strong sales processes and controls that require need-based selling are contributing factors as well. For ILP, the two rates are 5% and 9%. What is really happening is that the salesperson sold two products and thus earned double the commission. Our first article was Mis-selling month – it was very clear that there is rampant mis-selling in insurance and other financial products. ", etc, Filed Under: Featured, Financial advisers, Insurance, Unethical sales process. Join Mint channel in your Telegram and stay updated with the latest business news. To make the customer happy, the company would just fire the salesperson. Compare this against the global average of close to 90%. Balchandani also filed a PIL in December 2018 in the Rajasthan High Court, listing out the details of alleged mis-selling ICICI Prudential Life Insurance indulged in along with its bancassurance partner ICICI Bank in Rajasthan. The salesperson happily walks out of the company as millionaire. There are many shades to a mis-sell—sometimes customers don’t understand the policy well and the agent is unable to explain the nuances, given the overly complicated structure of insurance-cum-savings plans, sometimes the agents deliberately mislead the customers into buying the wrong plan and sometimes the sale is an outright fraud. In case you can’t find any email from our side, please check the spam folder. Mis-selling is not unique to insurance and happens in various lines of businesses (loans, credit cards, investment products, pharmacy, hospitality etc. He usually charges a percentage of the amount recovered. “The practice of stranger-owned life insurance is discouraged, by the regulator, due to lack of insurance interest. Mis-selling is very common in insurance sector. For IFA, maybe they need to work a bit harder by doing cold calls since customers do not walk-in. Even without being misled by agents, there are ways through which policyholders have been misled and mis-sold insurance policies. However, there are moments of reckoning for them too. Vanguard funds in Singapore at just US$ 20,000! Since there is a big lost in stopping the saving plan, the customer would just continue with the saving plan without getting the proper protection. Misselling refers to the misrepresentation of a product or service's suitability. “In more than 90% of the cases, the insurer accepted the mis-selling claim and refunded the money," he claimed. Essentially, if the insurance was not suitable for your circumstances when you were sold it then you may have reason to make a claim for compensation. FAQs on Wilfred Ling’s Financial Services. “80% of the policies that are mis-sold are endowment policies," said Balchandani. Hence, policyholders should always ask … An ICICI Prudential Life Insurance spokesperson said, in an email to Mint, that the company has a defined whistle-blower policy. Assignment refers to transfer of insurance benefits from one person to another. In reality, none of these rates are guaranteed. Learn how you can fully benefit from this massive website: HERE, © Copyright 2006-2020 Wilfred Ling. Firstly, can we have a common disclaimer for all market-linked instruments, i.e. The next year, the farmer was asked to pay another ₹2 lakh premium or risk complete forfeiture," he added. The gross commission is about 105% of the first year premium. While ICICI Prudential Life Insurance may have seen mis-selling of its traditional plans, the company has less than 10% exposure to these plans. Click here to see the enlarged version of the graphic. While mis-selling is rampant in the industry, a bulk of Balchandani’s customers are from his previous employer. “Insurance products should allow customers to get out of a policy with low surrender charges. Assuming there are 20 walks in every day, the number of walk in customers per month is 20*5*4 = 400. Health insurance is the most mis-sold product. “We would like to inform that there are no specific targets assigned to branches for solicitation of life insurance policies," said a spokesperson from ICICI Bank in an email to Mint. In fact, Bakhshi wasn’t a fan of traditional products. By doing this, they say the second policy becomes “free.” The customers would be enticed by greed. I will share that message with you all, except the contact number they provided. For example, selling life insurance to someone who has no dependents is regarded as misselling. According to Pankaaj Maalde as seen in an ET report, most mis-selling of insurance … If the customer surrenders within the 18 months period, there is going to be a commission clawback. “The amount is only taken after the money is actually recovered and is entirely voluntary for the person whose case I have taken up," said Balchandani. While other investment products in the financial industry encourage trail model for incentives, the new regulations on commission continued with the front-loaded structure (read more about it here: bit.ly/2MtGjim). A very common practice to 'cheat' the customer is to sell two plans. Hence, it is a mis-selling if saving plans were recommended if the need is for protection. Ranging from fraud and lack of awareness to inappropriate documentation, imbalance in the Insurance Sector looms larger than ever before owing to the rise of the Indian middle class and a shift towards more educated investments. Basavaraj Tonagatti. 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