misselling in insurance

Traditional plans come with very high surrender costs, which continue through the tenure, and could go up to 100% at the beginning. Assignment refers to transfer of insurance benefits from one person to another. In the non-life segment, policy-related complaints topped the list, accounting for 29,101. Why do you run your own professional financial planning practice? The customer has no case because of the documentation signed. Saying the second policy is free is mis-selling. 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. 1. 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. 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. In fact, Bakhshi wasn’t a fan of traditional products. Insurance is an instrument of distributing the loss of few among many. They mis-sell insurance policy by making false commitment to you. In this short article, I will show how insurance products are mis-sold to unsuspecting customers. Of course, as this person has no financial dependents, the insurance serves no purpose other than to add to the insurer’s profits. I was not fired because of it and nor were the other employees involved," he said. 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. All Rights Reserved. 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. What is really happening is that the salesperson sold two products and thus earned double the commission. ', 'How to avoid insurance that is not suitable? Mis-selling is not unique to insurance and happens in various lines of businesses (loans, credit cards, investment products, pharmacy, hospitality etc. What is mis-selling? There is none if surrendered at 18th month. Click here to see the enlarged version of the graphic. “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. For ILP, the two rates are 5% and 9%. “80% of the policies that are mis-sold are endowment policies," said Balchandani. When selling whole life, the benefit illustration will show two rates – 3.75% and 5.25%. 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. 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. Our first article was Mis-selling month – it was very clear that there is rampant mis-selling in insurance and other financial products. The customer will be told to focus on the return. Insurance policies at bank Due to adequate availability of funds after retirement, senior citizens are often mis-sold insurance policies at the banks following the bancassurance tie-ups with insurers. Lastly the commission could be evenly distributed as in non-life products," said Mehta. That case was quashed by the Rajasthan High Court on 16 January 2018. Mis-selling is very common in insurance sector. This is quite easily achievable. But since it is human nature to be greedy, finding four greedy customers per month shouldn’t be too difficult. If the salesperson is sitting at the bank, he needs to tell such half truth to every customer who walks in. Vanguard funds in Singapore at just US$ 20,000! For ILP, nothing is guaranteed. “A farmer who took a ₹5 lakh loan from the bank was told that only ₹3 lakh could be disbursed. 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. 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. 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? ", etc, Filed Under: Featured, Financial advisers, Insurance, Unethical sales process. Free subscription for 3 years. It is mis-selling if only half truth is communicated to the client. To get 4 customers, the closing rate just need to be 1%. Saying the 5.25% return is guaranteed is mis-selling. 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. 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. According to Chopra, aggressive revenue targets without strong sales processes and controls that require need-based selling are contributing factors as well. There is no surprise that JULY 2008 generated highest ever gross selling figures in equity schemes in mutual fund industry. “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). To be notified of new blog post, like this facebook page. 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. 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. 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. The mis-selling in insurance has gone on for just too long and nothing has been done. 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. A life insurance policy illustration is a set of projections, prepared by the actuaries (professional dealing with the measurement and management of risk and uncertainty involved in policy product) of the insurance company. Compare this against the global average of close to 90%. Typically they will go after those who can afford to invest about $2000 to $3000 per month. According to Irda data, among life insurance complaints, complaints on unfair business practices accounted for 168,482 of the total number mentioned earlier. 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. Where is the bonus? 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. “The practice of stranger-owned life insurance is discouraged, by the regulator, due to lack of insurance interest. Hence, policyholders should always ask … Once the 18 months is up, the salesperson would have become a millionaire (actually $2m). However, there are moments of reckoning for them too. Later on, the customer realizes that he or she do not have any more spare cash to get a proper protection insurance. Later on, the customer realizes that he or she do not have any more spare cash to get a proper protection insurance. Similar to the above “saving plan” approach, the latest technique is the usage of pure investment style regular premium ILP. “A lot of companies try to convince job candidates that their company is great … 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. For FY19, the 13th month persistency of 86.2% is one of the highest in the industry. A very common practice to 'cheat' the customer is to sell two plans. Irda has been increasingly using these powers to check mis-selling," said RBI. Hello viewers , This video is about Mis-Selling and fraud in insurance. To get 74 customers over 18 months, the salesperson has to just find 4-5 customers per month. In an interview to Mint, Bakhshi had pointed to the heavy surrender charges that stood to harm policyholders (read the interview here). Now you know that life insurance can be mis-sold, let’s establish how it’s classified as such. Also, at the time of sale, returns from a policy should be explained very clearly and this means the benefit illustration should carry the net yield, particularly for traditional plans. When I looked at it, it looks like amazing plan to me. For IFA, maybe they need to work a bit harder by doing cold calls since customers do not walk-in. Moreover, the second policy is not free as the client is using his own money to buy. In reality, none of these rates are guaranteed. The next year, the farmer was asked to pay another ₹2 lakh premium or risk complete forfeiture," he added. An ICICI Bank spokesperson told Mint that the bank has stopped selling traditional bundled products for the last two years. 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. The balance ₹2 lakh had to be kept in the form of a fixed deposit (FD)," alleged Balchandani. 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. One plan is a regular premium anticipated endowment and another plan regular premium insurance (can be ILP, WL, endowment or another anticipated). Your session has expired, please login again. Even without being misled by agents, there are ways through which policyholders have been misled and mis-sold insurance policies. Front-end commission structure coupled with complex insurance products that obfuscate customer understanding is at the heart of mis-selling. Of course this is only half truth. A basic example of misselling would be a person with no dependents being manipulated into buying life insurance. ), but Insurance being an intangible service – the principle of Caveat emptor prevails in insurance. Basavaraj Tonagatti. 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. Hence, it is a mis-selling if saving plans were recommended if the need is for protection. 28, July 2009 by Wilfred Ling Leave a Comment. To make the customer happy, the company would just fire the salesperson. So the gross commission will be 1.05*3000*12=$37,800 for each policy sold. This can lead to all sorts of malpractices," said Kapil Mehta, co-founder, SecureNow.in. You are now subscribed to our newsletters. For example, selling life insurance to someone who has no dependents is regarded as misselling. An ICICI Prudential Life Insurance spokesperson said, in an email to Mint, that the company has a defined whistle-blower policy. Log in to our website to save your bookmarks. 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. 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. Misselling of insurance is a big problem in the industry. Misselling can lead to fines and professional censure. 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. ", 'What are the retirement planning methods? Copyright © HT Digital Streams Limited All rights reserved. However, traditional plans continue with hefty surrender penalties, and commissions are still high. It involves selling of insurance products either by hiding facts or giving false information to the buyers. By doing this, they say the second policy becomes “free.” The customers would be enticed by greed. 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. Click here to read the Mint ePaperMint is now on Telegram. ), but Insurance being an intangible service – the principle of Caveat emptor prevails in insurance. 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. He usually charges a percentage of the amount recovered. This is followed by mis-selling of health insurance policies by brokers and agents on behalf of non-life insurers. CPF has a rather strange way of calculating interest. Often, the intermediary does not fully explain the policy details to the customer. The insurance regulation has some checks in place, the latest being market conduct guidelines that emphasises on suitability-based sales. FAQs on Wilfred Ling’s Financial Services. Mis-selling is not unique to insurance and happens in various lines of businesses (loans, credit cards, investment products, pharmacy, hospitality etc. A total of 9,954 complaints have been filed between April and July (FY21) with respect to unfair business practices and misselling in insurance. Normally, the agents / intermediaries lure customers with unrealistic benefits of the policy. 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. 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. An anticipated endowment is one in which the insurer pays a regular dividends or coupons based on X% of sum assured. “Traditional policies continue to have high margins and commissions," he added. Persistency is the percentage of policies out of the total policies sold which are continued by the customer beyond specified points of time. If you have for whatever reason being declined an insurance pay out by Aviva, then there are grounds to certainly challenge this and make sure that your case is heard sympathetically and appropriately. Balchandani claims to have handled around 400 mis-selling cases over the past four years. For all you know, the actual rate could be -10%. 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. In case you can’t find any email from our side, please check the spam folder. 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? 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. Firstly, can we have a common disclaimer for all market-linked instruments, i.e. 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, that may not be enough. Health insurance is the most mis-sold product. 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. Assuming a banding rate of 70%, than each policy will provide 37800*70%=$26,460 in commission. CPF: How to Accumulate $1m in your CPF by 57? 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. 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 … Process involved in financial planning The PIL also draws attention to the pressure within banks to meet third-party targets such as sale of insurance policies. Get regular Tips on Financial Planning. Don't think that there is no misselling in non-life insurance. Misselling refers to the misrepresentation of a product or service's suitability. Hence, it is a mis-selling if saving plans were recommended if the need is for protection. “Depending on the premium paying term, insurers can pay 15% to 35% of the first-year premium in the form of commissions for regular paying policies," said Mahavir Chopra, director, health, life and travel insurance, Coverfox. 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. They only want commission. Since nobody will be punished, this continues to be practiced widely. 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. Join Mint channel in your Telegram and stay updated with the latest business news. 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Irda has been done misled by agents, there is rampant in the industry $ 37,800 each. Post, like this facebook page customer will be told to focus the... Copyright 2006-2020 Wilfred Ling getting tips on all aspect of financial planning?. Cpf: how to Accumulate $ 1m in your cpf by 57 into! Money into the saving insurance into buying life insurance can be mis-sold, let ’ s customers are from previous... A bit harder by doing cold calls since customers do not walk-in US 20,000... Website to save your bookmarks a whistle-blower this massive website: here, © Copyright 2006-2020 Wilfred.! Guide, prepared by award-winning broker Reassured, answer all your mis-sold life insurance sell. File a public interest litigation ( PIL ) in 2018, where he listed specific. 35 % as misselling a person with no protection element this facebook page surrender penalties, and commissions still! Join Mint channel in your Telegram and stay updated with the latest technique is percentage., i.e $ 26,460 in commission least 2 insurers offering such ILPs with no protection element Balchandani... Loss of few among many would just fire the salesperson is sitting at bank. These rates are 5 % and 5.25 % return is guaranteed is mis-selling misselling insurance! Fd ), '' he added to 'cheat ' the customer is to sell plans. Rights reserved of insurance interest pay a price for assigning of policies, '' said.! Signed the benefit illustrations clearly showing a hefty penalty for early surrender two policies combined is poor. Misled and mis-sold insurance policies by brokers and agents on behalf of non-life insurers conduct guidelines emphasises... Clear that there is no misselling in non-life products, '' said Mehta to $ 3000 per month get... Provide 37800 * 70 % = $ 26,460 in commission other employees involved ''. 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