How banks trick customers into buying insurance

When Mohan Kumar sought a home loan from a nationalised bank, the bank, at the time of release of the loan insisted that he take an insurance cover on the property. Being an insurance broker himself, Mohan bluntly refused to take the cover as the foundation work had just started and he had booked a flat on the second floor.

“What do you want me to insure? The property is yet to take shape and the insurable interest will arise only after the property is handed over to me. It is still with the contractor,” he argued with the banker, refusing to give in.

Realising that the borrower had a point, the banker did not press much, Mohan told Business Line adding “first of all it is incorrect to insist (insurance) cover on a structure that exists only on paper, worse still on the loan amount. But this is what banks do.”

Urging borrowers to understand the implication of taking such covers before signing on the dotted line, Mohan said “the awareness level is pretty low. People blindly give in as they have no choice but borrow money to acquire the asset.”

Sympathising with his erstwhile colleagues in the bank, K Kathirmathiyon, Secretary, Coimbatore Consumer Cause said “sadly though, a good number of (bank) employees do not have knowledge or idea of the policies that they sell to innocent public. Targets for achieving insurance business are fixed and most of them do not even have proper license to sell insurance products. Banks adopt illegal methods and account as if the policies are sold through some other employee/ official.”

“The borrower who is in dire need of money is left with no choice but agree to take the insurance even if the premium amount is high and he/ she is not actually interested in insurance. The fear of not getting the loan is forcing people to resign to their fate,” laments Kathir.

“Though banks claim and even inform RBI and IRDA that they are not mis-selling and denying forced sale of insurance policies, this far from true,” the CCC Secretary vows, appealing to IRDA to initiate action against all those who are beneficiaries to the commission.

“Even the Central Vigilance Commission had pointed to the Government that some banks are compromising on the quality of advances for insurance business,” Kathir said, recalling CVC’s observation.

“IRDA’s announcement on making banks accountable for mis-selling insurance products is laudable; it may be a small step, but may not eradicate and stop the forced/ false/ mis-selling of insurance,” the CCC Secretary said.

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