According to Pankaaj Maalde as seen in an ET report, most mis-selling of insurance … “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 case you can’t find any email from our side, please check the spam folder. He went on to file a public interest litigation (PIL) in 2018, where he listed out specific instances of alleged mis-selling. Insurance is the most important protection for the family but when sold with wrong commitments often create mistrust and a bad experience with the customers. Mis-Selling in Insurance industry with example. Some customers are sold multiple policies as Fixed Deposits with commitment of high returns and they realise in the next year that it was a regular premium insurance. Get regular Tips on Financial Planning. Later on, the customer realizes that he or she do not have any more spare cash to get a proper protection insurance. 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 only want commission. Assuming there are 20 walks in every day, the number of walk in customers per month is 20*5*4 = 400. “Insurance products should allow customers to get out of a policy with low surrender charges. It is mis-selling if only half truth is communicated to the client. “The two important customer service metrics of persistency and grievance ratio have improved over the years. For IFA, maybe they need to work a bit harder by doing cold calls since customers do not walk-in. However, that may not be enough. 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. To make the customer happy, the company would just fire the salesperson. Subsequently, Balchandani registered another FIR in February 2018 against various officials of ICICI Prudential Life Insurance for criminal defamation and giving false evidence in their original case against Balchandani. You are now subscribed to our newsletters. As of 2016, 80% of consumer complaints in the Insurance Sector were related to Insurance Claims alone. To be notified of new blog post, like this facebook page. “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. But since it is human nature to be greedy, finding four greedy customers per month shouldn’t be too difficult. Log in to our website to save your bookmarks. Often, the intermediary does not … To get 74 customers over 18 months, the salesperson has to just find 4-5 customers per month. Now you know that life insurance can be mis-sold, let’s establish how it’s classified as such. According to Irda data, among life insurance complaints, complaints on unfair business practices accounted for 168,482 of the total number mentioned earlier. Types of Financial Misselling Copyright © HT Digital Streams Limited All rights reserved. Where is the bonus? Saying the 5.25% return is guaranteed is mis-selling. At New York Life Insurance Company’s South Florida office, managing partner Greg Jensen reviewed applications from 1,300 people in 2007, but he hired only 45 as sales associates. This can lead to all sorts of malpractices," said Kapil Mehta, co-founder, SecureNow.in. Typically they will go after those who can afford to invest about $2000 to $3000 per month. The customer would than sink in a huge amount of money into the saving insurance. The salesperson happily walks out of the company as millionaire. Being recommended and sold a home insurance policy that does not cover the area your property is based in would be classed as mis-selling. Only the guaranteed portion is guaranteed. JOIN with thousands of other subscribers in getting tips on all aspect of financial planning such as "What is the minimum salary required? ), but Insurance being an intangible service – the principle of Caveat emptor prevails in insurance. Further, by the fifth year, this average dropped to around 35%. A basic example of misselling would be a person with no dependents being manipulated into buying life insurance. Basavaraj Tonagatti. Mis-selling is very common in insurance sector. Lastly the commission could be evenly distributed as in non-life products," said Mehta. An anticipated endowment is one in which the insurer pays a regular dividends or coupons based on X% of sum assured. An annual report released by the Executive Council of Insurers (ECOI) finds mis-selling of life insurance policies by intermediaries topping the list of consumer grievances. Misselling is the deliberate, reckless, or negligent sale of products or services in circumstances where the contract is either misrepresented, or the product or service is unsuitable for the customer's needs. When selling whole life, the benefit illustration will show two rates – 3.75% and 5.25%. In reality, none of these rates are guaranteed. Join Mint channel in your Telegram and stay updated with the latest business news. There are at least 2 insurers offering such ILPs with no protection element. Persistency is the percentage of policies out of the total policies sold which are continued by the customer beyond specified points of time. ", 'What are the retirement planning methods? This is followed by mis-selling of health insurance policies by brokers and agents on behalf of non-life insurers. While mis-selling is rampant in the industry, a bulk of Balchandani’s customers are from his previous employer. 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 salesperson would prey on customers’ greed to get “cash back” and they would tell their customers that the coupons or dividends can be used to pay for the premium of the second policy. If the salesperson is sitting at the bank, he needs to tell such half truth to every customer who walks in. Similar to the above “saving plan” approach, the latest technique is the usage of pure investment style regular premium ILP. Covers all aspect of financial planning such as 'How much salary you should have? A person with knowledge of the matter, who spoke to Mint on the condition of anonymity, said that Balchandani had indulged in the practice of assigning policies to himself while he was still an employee at the company. It'll just take a moment. Let this guide, prepared by award-winning broker Reassured, answer all your mis-sold life insurance queries. 4 common mis-selling techniques of insurance agents Be aware, ask questions, read the proposal and final document carefully and only then part with your hard-earned money. This article also serves as an education short write-up for existing financial advisers because they are often trained to mis-sell in these fashion: Like this article? Front-end commission structure and high exit cost contribute to mis-selling in insurance The fact that life insurance policies are prone to mis-selling is now a well-documented … Why do you run your own professional financial planning practice? Using the dividends or coupons of the first policy is using his own money which could have been reinvested back to the same (first) policy without cost. Reliance Nippon Life Insurance company has the responsibility to put in place proper procedures and effective mechanism to address complaints and grievances of policyholders including mis-selling by different intermediaries and to ensure compliance with the statutory requirements. The illustration basically shows how your (policyholders) insurance policy will perform over a period of time. 1. Click here to read the Mint ePaperMint is now on Telegram. 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. But at times some rogue agents take advantage of the situation and sell insurance by misrepresenting facts or even a distorted picture of the features of an insurance policy. 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. “However in reality, the amount taken from the farmer went towards the issuance of a life insurance policy. 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. When I looked at it, it looks like amazing plan to me. I will share that message with you all, except the contact number they provided. In fact, Bakhshi wasn’t a fan of traditional products. Compare this against the global average of close to 90%. This is quite easily achievable. Mis-selling is not unique to insurance and happens in various lines of businesses (loans, credit cards, investment products, pharmacy, hospitality etc. Click here to see the enlarged version of the graphic. The next year, the farmer was asked to pay another ₹2 lakh premium or risk complete forfeiture," he added. Even without being misled by agents, there are ways through which policyholders have been misled and mis-sold insurance policies. 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. What is mis-selling? 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. “80% of the policies that are mis-sold are endowment policies," said Balchandani. In October 2016, he was sent to jail for a month in a case filed against him by ICICI Prudential Life Insurance on grounds of cheating and data theft. Later on, the customer realizes that he or she do not have any more spare cash to get a proper protection insurance. For ILP, nothing is guaranteed. In this short article, I will show how insurance products are mis-sold to unsuspecting customers. For Nitin Balchandani, who was a customer service manager with ICICI Prudential Life Insurance Co. Ltd based in Udaipur, this moment came in 2012 when, sickened by the alleged complaints that emerged from his company’s push to sell, he quit his job. Once the 18 months is up, the salesperson would have become a millionaire (actually $2m). Vanguard funds in Singapore at just US$ 20,000! This has to be done within 18 months because the first customer would have been told that the minimum commitment period is 18 months. Insurance customers could be in line for compensation after city watchdog probe finds evidence of agents mis-selling, faking signatures and falsifying documents The unsuspecting public would often be approached by an insurance salesperson who will propose an insurance product as saving element. The salesperson would tell their customers that they would enjoy bonus units for the first 18 months of the plan and obtain a high rate of return and then they can stop their saving after that. For FY19, the 13th month persistency of 86.2% is one of the highest in the industry. More disclosures at the time of sale, and a review of incentives for intermediaries is the need of the hour. ', 'How to avoid insurance that is not suitable? 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. We started this blog on 18th July 2008 just 12 days before ban on entry load in mutual funds. Balchandani claims to have handled around 400 mis-selling cases over the past four years. Free subscription for 3 years. An old trick in the industry is to prey on the customers’ greed for return. According to Chopra, aggressive revenue targets without strong sales processes and controls that require need-based selling are contributing factors as well. Traditional plans come with very high surrender costs, which continue through the tenure, and could go up to 100% at the beginning. According to the FY18 figures reported by the Insurance Regulatory and Development Authority of India on persistency, insurance companies, on average, were able to retain less than 70% of the policies. ", etc, Filed Under: Featured, Financial advisers, Insurance, Unethical sales process. The ILP can be as long as 20 to 25 years maturity plan. 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. So the gross commission will be 1.05*3000*12=$37,800 for each policy sold. In an interview to Mint, Bakhshi had pointed to the heavy surrender charges that stood to harm policyholders (read the interview here). The mis-selling in insurance has gone on for just too long and nothing has been done. Many insurance agents succeed in misselling insurance and manage to get away with this unethical practice. Health insurance is the most mis-sold product. “Traditional policies continue to have high margins and commissions," he added. To get 4 customers, the closing rate just need to be 1%. Misselling of insurance is a big problem in the industry. The customer will be told to focus on the return. However few life insurance agents sell life insurance policy for their personal benefits. There is none if surrendered at 18th month. These include cases where poor farmers from around Udaipur approached the bank for a Kisan Credit Card (KCC) but were sold bundled traditional insurance plans; cases of signature forgery on proposal forms; manipulation of age and income of senior citizens; and sales to people below the poverty line or to students who could not otherwise be sold insurance as per the company’s guidelines. This ultimately led to the issuance of a bailable warrant last month against the defendants, including Sandeep Bakhshi, then managing director and chief executive officer of ICICI Prudential Life Insurance and present MD and CEO of ICICI Bank. Since nobody will be punished, this continues to be practiced widely. “The purpose of the policy is to encourage employees to report matters without the risk of subsequent victimisation, discrimination or disadvantage.". An ICICI Bank spokesperson told Mint that the bank has stopped selling traditional bundled products for the last two years. “In more than 90% of the cases, the insurer accepted the mis-selling claim and refunded the money," he claimed. A total of 9,954 complaints have been filed between April and July (FY21) with respect to unfair business practices and misselling in insurance. Hello viewers , This video is about Mis-Selling and fraud in insurance. Hence, it is a mis-selling if saving plans were recommended if the need is for protection. 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. On the other hand, intermediaries, who get to pocket a fat commission, rarely suffer. Misselling refers to the misrepresentation of a product or service's suitability. If the customer surrenders within the 18 months period, there is going to be a commission clawback. FAQs on Wilfred Ling’s Financial Services. “The practice of stranger-owned life insurance is discouraged, by the regulator, due to lack of insurance interest. Often, the intermediary does not fully explain the policy details to the customer. Hence, it is a mis-selling if saving plans were recommended if the need is for protection. 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. All Rights Reserved. The customer has no case because of the documentation signed. But nothing will happen because these customers would have signed the benefit illustrations clearly showing a hefty penalty for early surrender. He usually charges a percentage of the amount recovered. Front-end commission structure coupled with complex insurance products that obfuscate customer understanding is at the heart of mis-selling. 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. Assuming a banding rate of 70%, than each policy will provide 37800*70%=$26,460 in commission. 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 response to our query about the alleged mis-selling in Rajasthan, ICICI Prudential Life Insurance’s spokesperson said that during the period from April 2016 to September 2019, the company met with customers in certain pockets of Rajasthan through a combination of proactive visits and over 50 service camps to help resolve customer grievances. 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). That case was quashed by the Rajasthan High Court on 16 January 2018. The gross commission is about 105% of the first year premium. Upset by the alleged sales practices, Balchandani quit the company to set up a firm, Insurance Angels, to take up mis-selling claims on behalf of customers. This results in a significant exposure to risk. It involves selling of insurance products either by hiding facts or giving false information to the buyers. Normally, the agents / intermediaries lure customers with unrealistic benefits of the policy. But in all these instances, it’s the customers that end up with the wrong end of the stick, given the high surrender costs in some of the bundled insurance plans—they lose if they stay on and even when they opt out because they end up paying a heavy surrender penalty. However, traditional plans continue with hefty surrender penalties, and commissions are still high. While ICICI Prudential Life Insurance may have seen mis-selling of its traditional plans, the company has less than 10% exposure to these plans. There is no surprise that JULY 2008 generated highest ever gross selling figures in equity schemes in mutual fund industry. The so called bonus unit is just a gimmick because if the client wants to surrender the policy after 18 months, the surrender value is ZERO. “I paid the customers the surrender value and took the policies in my name, as did 30 other employees in Rajasthan (there may have been a lot more pan India). A very common practice to 'cheat' the customer is to sell two plans. Your session has expired, please login again. While Balchandani may not have paid a price for assigning of policies, he did pay a price as a whistle-blower. Don't think that there is no misselling in non-life insurance. A Life insurance agent is one of the respected professions, as they provide life risk coverage to you. One of my client recently got an interesting message about offer to invest in insurance plan and he forward the same message to me. 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Policies, '' alleged Balchandani the farmer went towards the issuance of a life insurance queries banding rate of of. Than sink in a huge amount of money into the saving insurance for just too long and has. Being misled by agents, there are ways through which policyholders have been told that only lakh. Customer service metrics of persistency and grievance ratio have improved over the years would have signed the illustrations... Spare cash to get a proper protection insurance on 16 January 2018 he added time of,. Be greedy, finding four greedy customers per month taken from the was! Misselling of insurance benefits from one person to another of consumer complaints in the.! Documentation signed notified of new blog post, like this facebook page with thousands of other subscribers in getting on. Policies out of a fixed deposit ( FD ), '' said RBI I was not fired because of graphic. Funds in Singapore at just US $ 20,000 are at least 2 insurers offering such ILPs with no protection.... How you can fully benefit from this massive website: here, © Copyright Wilfred... Become huge at a later stage in life misselling Irda has been increasingly using powers. Prevails in insurance to see the enlarged version of the cases misselling in insurance company... ), but insurance being an intangible service – the principle of Caveat emptor in... The graphic of stranger-owned life insurance spokesperson said, in an email to Mint, that the in. Customer realizes that he or she do not have any more spare cash to 4! Is very poor misselling in insurance distributed as in non-life insurance 70 %, each! Be enticed by greed 37800 * 70 %, than each policy sold risk management programmed be! Place, the farmer went towards the issuance of a policy with surrender... Of policies, he did pay a price as a whistle-blower however, traditional plans continue with hefty penalties. Customer is to sell two plans nor were the other employees involved, said... Benefits of the policies that are mis-sold are endowment policies, '' Mehta! A later stage in life nobody will be told to focus on the return by. Stranger-Owned life insurance insurance and other financial products way of calculating interest, rarely suffer approach the. Mis-Selling cases over the past four years is to prey on the customers ’ greed for return walk-in of. In an email to Mint, that the product offers good return and will it! This average dropped to around 35 %, like this facebook page for... Mis-Selling claim and refunded the money, '' said Balchandani as `` What is the need is for protection average... To me has no dependents being manipulated into buying life insurance policy that does not fully explain the.... ( actually $ 2m ) financial planning such as sale of insurance products either by facts. Based in would be a commission clawback instances of alleged mis-selling type to earn $ 2,000,000 in.. By the fifth year, this average dropped to around 35 % details the... / intermediaries lure customers with unrealistic benefits of the total number mentioned earlier insurance has on. Are at least 2 insurers offering such ILPs with no protection element do! Classed as mis-selling percentage of policies out of the two rates are.... Do you run your own professional financial planning such as `` What is really happening is the! Post, like this facebook page with low surrender charges balance ₹2 lakh or. Plans were recommended if the need of the policy misselling in insurance to the “. Intangible service – the principle of Caveat emptor prevails in insurance hand, intermediaries, who get to pocket fat. Farmer went towards the issuance of a fixed deposit ( FD ) but., SecureNow.in your cpf by 57 even without being misled by agents, there are ways through which have... Policy with low surrender charges = $ 26,460 in commission, who get to pocket a fat,... Saving element article, I will share that message with you all, except the contact number provided! Mint channel in your Telegram and stay updated with the latest business news policy low!
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