Page 6 - Life Insurance Today December 2017

the customer accounts and zero in on those with little table they won't be accepted. Mis-selling of policies to
knowledge or fat balances. There is enough anecdotal people, mostly uneducated and poor, is rampant in the
evidence to suggest life insurance is often mis-sold. In fact, insurance sector.
the industry now accepts this and the sector regulator has
instituted reforms to control the menace. The efforts have Why Mis-selling is Rampant?
certainly improved sales practices but not completely
Mis-selling continues to be rampant. Due to large-scale
plugged the hole.
surrenders of equity market-oriented schemes under
ULIPs, mis-sold to customers during previous years,
There have also been cases of imposters calling up on
domestic institutional investors (DIIs) were forced to slash
behalf of the IRDAI and offering to help policyholders exit
their equity holdings in domestic listed firms in recent
a life insurance policy and invest the money in better
years. Therefore mis selling in insurance could be
investment products. IRDAI does not call individual
described as selling a product/service to a customer in a
customers offering to help them exit plans. Mis-selling of manner which is detrimental to his/her interest. Some of
insurance products and frequent changes in regulations
the common examples of mis-selling are:
may impact the valuation of insurance companies in India.
Y Selling annual premium life insurance plans as single
The valuation of insurance companies has become a focus
premium plan
since Act has allowed foreign insurers to raise their stake
in Indian ones to 49% from 26%. Y Premiums payable under the policy are beyond the
financial capacity of the proposer/disproportionate to
Curbing mis-selling is critical as it can hurt not only the the actual sources of income
reputation of the insurance industry, but also valuations
Y Sale of insurance plans which are unsuitable based on
of insurance companies. Owing to the trust reposed by the profile requirements of the customer.
customers in their banks, they buy insurance inside the
Y Sale of insurance policies without explaining the
bank branch. Allowing mis-selling inside the branch,
product features and without providing accurate and
therefore, smacks of negligence. It is not because of
adequate information about the plan offered for sale.
insurance they visit the bank branch, but because of their
banking needs. Y Sales of insurance plans by indulging in forgery,
tampering of proposal or related papers
While it is difficult to quantify the impact of mis-selling on
Y Sale of insurance policies in the name of fixed
an insurance company's valuation, it does get affected
deposits, term deposits, mutual
adversely. High lapsation rate, which could stem partly
from mis-selling, can be a drag on insurers' valuations. To Y Fund schemes, shares etc. Sale of insurance policies
try and contain mis-selling and churning, the IRDAI has by using coercive
been on overdrive, issuing one regulation one after the Y Techniques such as imposing a precondition to obtain
other. However, while this addresses the issue of mis- insurance cover from particular insurer for sanction of
selling to a limited extent, it has also created a new issue- housing loan or any other benefit in respect of
that of frequently changing regulations. principal business carried out by corporate agents,
banks/FI's, either formally or informally.
This has resulted in insurance companies being uncertain
Y Sale of insurance policies by making fictitious offers
about the regulatory environment and curbing products on
offer to the customers. Today, a lot of mis-selling such as huge bonus on poorly performing policies,
sanction of a loan, opening ATM, putting up a telecom
happens due to topline (revenue) pressures on
tower etc.
companies. Just to meet the topline pressure,
managements of several insurance companies have Y Sale of insurance policies by resorting to spurious
adequate tolerance for mis-selling. Companies need to calling in the name of officials of IRDAI, RBI, SEBI,
institutionalize that unless quality sales are brought to the Insurers and other government agencies such as

Imagination was given to man to compensate him for what he is not, and a sense of humor was provided to
console him for what he is.

6 December 2017 Life Insurance Today

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