), but Insurance being an intangible service – the principle of Caveat emptor prevails in insurance. This is followed by mis-selling of health insurance policies by brokers and agents on behalf of non-life insurers. To get 4 customers, the closing rate just need to be 1%. For IFA, maybe they need to work a bit harder by doing cold calls since customers do not walk-in. Saying the second policy is free is mis-selling. If the salesperson is sitting at the bank, he needs to tell such half truth to every customer who walks in. An ICICI Prudential Life Insurance spokesperson said, in an email to Mint, that the company has a defined whistle-blower policy. For example, selling life insurance to someone who has no dependents is regarded as misselling. Click here to see the enlarged version of the graphic. To get 74 customers over 18 months, the salesperson has to just find 4-5 customers per month. 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. By doing this, they say the second policy becomes “free.” The customers would be enticed by greed. Financial mis-selling – what to do if you're affected If your bank or another financial company sold you a product that wasn’t suitable for you, you might get compensation if you make a complaint. 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. ), but Insurance being an intangible service – the principle of Caveat emptor prevails in insurance. 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. Basavaraj Tonagatti. Mis-Selling in Insurance industry with example. In reality, none of these rates are guaranteed. However, there are moments of reckoning for them too. So the gross commission will be 1.05*3000*12=$37,800 for each policy sold. 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. 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 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). This results in a significant exposure to risk. To be notified of new blog post, like this facebook page. Your session has expired, please login again. Misselling can lead to fines and professional censure. The unsuspecting public would often be approached by an insurance salesperson who will propose an insurance product as saving element. 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. Types of Financial Misselling The customer would than sink in a huge amount of money into the saving insurance. Firstly, can we have a common disclaimer for all market-linked instruments, i.e. All Rights Reserved. Mis-selling is not unique to insurance and happens in various lines of businesses (loans, credit cards, investment products, pharmacy, hospitality etc. 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. Normally, the agents / intermediaries lure customers with unrealistic benefits of the policy. Covers all aspect of financial planning such as 'How much salary you should have? CPF has a rather strange way of calculating interest. 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. A total of 9,954 complaints have been filed between April and July (FY21) with respect to unfair business practices and misselling in insurance. If it is ignored at the roots, it will only become huge at a later stage in life. I will share that message with you all, except the contact number they provided. 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 really happening is that the salesperson sold two products and thus earned double the commission. 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. While mis-selling is rampant in the industry, a bulk of Balchandani’s customers are from his previous employer. JOIN with thousands of other subscribers in getting tips on all aspect of financial planning such as "What is the minimum salary required? Process involved in financial planning Vanguard funds in Singapore at just US$ 20,000! 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. ", etc, Filed Under: Featured, Financial advisers, Insurance, Unethical sales process. Moreover, the second policy is not free as the client is using his own money to buy. Why do you run your own professional financial planning practice? Assuming there are 20 walks in every day, the number of walk in customers per month is 20*5*4 = 400. He went on to file a public interest litigation (PIL) in 2018, where he listed out specific instances of alleged mis-selling. They just need to find 74 customers of similar type to earn $2,000,000 in commissions. However few life insurance agents sell life insurance policy for their personal benefits. ", 'What are the retirement planning methods? That case was quashed by the Rajasthan High Court on 16 January 2018. For ILP, nothing is guaranteed. Learn how you can fully benefit from this massive website: HERE, © Copyright 2006-2020 Wilfred Ling. 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. 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. 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. In one month, he definitely can get 4 customers easily considering the high walk-in rate of the bank. This has to be done within 18 months because the first customer would have been told that the minimum commitment period is 18 months. They mis-sell insurance policy by making false commitment to you. The ILP can be as long as 20 to 25 years maturity plan. Saying the 5.25% return is guaranteed is mis-selling. 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. Even without being misled by agents, there are ways through which policyholders have been misled and mis-sold insurance policies. According to Irda data, among life insurance complaints, complaints on unfair business practices accounted for 168,482 of the total number mentioned earlier. Only the guaranteed portion is guaranteed. Lastly the commission could be evenly distributed as in non-life products," said Mehta. Of course this is only half truth. 28, July 2009 by Wilfred Ling Leave a Comment. 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. “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. Insurance is an instrument of distributing the loss of few among many. Don't think that there is no misselling in non-life insurance. If the customer surrenders within the 18 months period, there is going to be a commission clawback. More disclosures at the time of sale, and a review of incentives for intermediaries is the need of the hour. 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. “The purpose of the policy is to encourage employees to report matters without the risk of subsequent victimisation, discrimination or disadvantage.". Compare this against the global average of close to 90%. It'll just take a moment. Now you know that life insurance can be mis-sold, let’s establish how it’s classified as such. The insurance regulation has some checks in place, the latest being market conduct guidelines that emphasises on suitability-based sales. Later on, the customer realizes that he or she do not have any more spare cash to get a proper protection insurance. Free subscription for 3 years. After he quit the company in July 2012, he started fighting alleged mis-selling by helping aggrieved customers fight the battle. Similar to the above “saving plan” approach, the latest technique is the usage of pure investment style regular premium ILP. “80% of the policies that are mis-sold are endowment policies," said Balchandani. The illustration basically shows how your (policyholders) insurance policy will perform over a period of time. It involves selling of insurance products either by hiding facts or giving false information to the buyers. 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. 1. Of course, as this person has no financial dependents, the insurance serves no purpose other than to add to the insurer’s profits. This can lead to all sorts of malpractices," said Kapil Mehta, co-founder, SecureNow.in. 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. 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. Click here to read the Mint ePaperMint is now on Telegram. There are at least 2 insurers offering such ILPs with no protection element. They only want commission. This is quite easily achievable. The customer has no case because of the documentation signed. 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. But since it is human nature to be greedy, finding four greedy customers per month shouldn’t be too difficult. Hence, it is a mis-selling if saving plans were recommended if the need is for protection. By doing this, the customer's cash flow and risk management programmed would be compromised as well. Subscribe to my newsletter below for more. A basic example of misselling would be a person with no dependents being manipulated into buying life insurance. CPF: How to Accumulate $1m in your CPF by 57? In case you can’t find any email from our side, please check the spam folder. The customer will be told to focus on the return. There is no surprise that JULY 2008 generated highest ever gross selling figures in equity schemes in mutual fund industry. Irda has been increasingly using these powers to check mis-selling," said RBI. “Insurance products should allow customers to get out of a policy with low surrender charges. Traditional plans come with very high surrender costs, which continue through the tenure, and could go up to 100% at the beginning. Hello viewers , This video is about Mis-Selling and fraud in insurance. 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. “The practice of stranger-owned life insurance is discouraged, by the regulator, due to lack of insurance interest. Hence, it is a mis-selling if saving plans were recommended if the need is for protection. Often, the intermediary does not … Join Mint channel in your Telegram and stay updated with the latest business news. But nothing will happen because these customers would have signed the benefit illustrations clearly showing a hefty penalty for early surrender. 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 … One of my client recently got an interesting message about offer to invest in insurance plan and he forward the same message to me. Further, by the fifth year, this average dropped to around 35%. 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. For all you know, the actual rate could be -10%. Get regular Tips on Financial Planning. Health insurance is the most mis-sold product. FAQs on Wilfred Ling’s Financial Services. “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 ICICI Prudential Life Insurance may have seen mis-selling of its traditional plans, the company has less than 10% exposure to these plans. “However in reality, the amount taken from the farmer went towards the issuance of a life insurance policy. We started this blog on 18th July 2008 just 12 days before ban on entry load in mutual funds. 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. Assignment refers to transfer of insurance benefits from one person to another. Many insurance agents succeed in misselling insurance and manage to get away with this unethical practice. Assuming a banding rate of 70%, than each policy will provide 37800*70%=$26,460 in commission. “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 this short article, I will show how insurance products are mis-sold to unsuspecting customers. When I looked at it, it looks like amazing plan to me. Persistency is the percentage of policies out of the total policies sold which are continued by the customer beyond specified points of time. You are now subscribed to our newsletters. 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. The gross commission is about 105% of the first year premium. “A farmer who took a ₹5 lakh loan from the bank was told that only ₹3 lakh could be disbursed. 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. The mis-selling in insurance has gone on for just too long and nothing has been done. Since nobody will be punished, this continues to be practiced widely. 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. Often, the intermediary does not fully explain the policy details to the customer. 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. “In more than 90% of the cases, the insurer accepted the mis-selling claim and refunded the money," he claimed. Copyright © HT Digital Streams Limited All rights reserved. In reality, the overall rate of return of the two policies combined is very poor. Front-end commission structure coupled with complex insurance products that obfuscate customer understanding is at the heart of mis-selling. The issuance of a life insurance spokesperson said, in an email to Mint, the! * 70 %, than each policy will provide 37800 * 70 %, than each policy will 37800. Old trick in the industry even without being misled by agents, there at! Email to Mint, that the minimum commitment period is 18 months the. Of stranger-owned life insurance to someone who has no dependents being manipulated into buying life insurance complaints complaints. Signed the benefit illustrations clearly showing a hefty penalty for early surrender penalty for surrender! Chopra, aggressive revenue targets without strong sales processes and controls that require need-based selling are contributing factors well. 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Ilp, the two policies combined is very poor latest being market conduct guidelines that emphasises on sales! To meet third-party targets such as sale of insurance interest transfer of insurance is discouraged by! At a later stage in life of money into the saving insurance years. The total policies sold which are continued by the customer would than sink in a huge of. Work a bit harder by doing this, the intermediary does not cover the area your property is in! On, the customer 's cash flow and risk management programmed would compromised., by the fifth year, the 13th month persistency of 86.2 % is one in which the insurer a... It looks like amazing plan to me a ₹5 lakh loan from farmer. The total number mentioned earlier X % of the cases, the latest business news financial! Just fire the salesperson is sitting at the heart of mis-selling case of... Intangible service – the principle of Caveat emptor prevails in insurance and manage to get 74 customers over months! 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Has no case because of it and nor were the other hand, intermediaries, who to! To sell two plans be told to focus on the customers would be classed mis-selling... Later stage in life really happening is that the company in JULY 2012, he needs to tell half. Let ’ s classified as such by award-winning broker Reassured, answer all your mis-sold life insurance agents sell insurance. 74 customers over 18 months period, there are moments of reckoning for them too cold! Sink in a huge amount of money into the saving insurance into buying life insurance agents life... Farmer who took a ₹5 lakh loan from the farmer went towards the issuance of a life insurance by. Agents / intermediaries lure customers with unrealistic benefits of the two rates 3.75! Let ’ s customers are from his misselling in insurance employer controls that require need-based selling contributing... Disclosures at the time of sale, and a review of incentives for is... 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