Mis-selling of insurance products by banks on the rise

Septuagenarian Anusua Basu wanted to make a one-time investment of ₹1.5 lakh in an equity-linked savings scheme (ELSS) for tax gain. She paid the amount and was ready to wait for the three-year lock-in period to get over to earn her returns.

She was, however, in for a shock when her account was debited for ₹1.5 lakh the second year as well.

On receiving the premium renewal notice the second year, she realised that her bank had sold her a ULIP instead. When she went to the bank looking for the relationship manager who sold her the policy, she was informed that the person concerned had moved out.

Anusua is not alone. Instances of mis-selling of insurance products through bank branches are on the rise. Customers easily give in to the aggressive marketing techniques of some bank employees primarily on account of the trust reposed on the bank they have been banking with. Though there is no official data on the number of policies mis-sold, calls made to banking and insurance ombudsman offices in Mumbai, Kolkata, Chennai and Ahmedabad confirm there is a rise in complaints from people on mis-selling by banks.

Mis-selling refers to certain ‘unfair business practices’, including wrong sale of product, loading on products and promise of higher returns.

“The number of complaints from people about mis-selling by bank branches has increased. However, a complaint may not necessarily mean that the product was always mis-sold,” a banking ombudsman officer from Mumbai told BusinessLine on condition of anonymity.

According to industry experts, instances of mis-selling are expected to rise in future with banks and insurance companies going aggressive on the bancassurance channel, more so under the open architecture model, unless attention is paid to developing simpler products and equipping bank employees with adequate knowledge and infrastructure.

Under open architecture, a bank can have tie-ups with up to three insurers — in each of life, non-life and health segments.

“Mis-selling is prevalent in almost all kinds of channels, but the open architecture model will throw up more challenges,” said P Nandagopal, Founder and CEO, Insurance Inbox.

Having multiple tie-ups would call for specific skill-sets from bank employees to be able to understand the nuances of different products offered by different insurers and be able to pass on the correct information to the customer.

“At present, banks have not invested much to understand this business; insurance still is a side business for them. Insurance companies should, therefore, put in efforts to make bank employees understand their products better,” Nandagopal said.

With the Insurance Regulatory and Development Authority of India (IRDAI) issuing guidelines on open architecture in 2015, banks and insurance companies have been looking at this segment aggressively to scale up their business.

While on the banks’ part it is a way to earn fee-based income, for an insurance company this would mean better penetration across the country, including the rural markets.

Max Bupa Health Insurance has access to nearly 100 million customers through its bancassurance partners.

“It is a strategic growth driver. The channel has been growing at 40-50 per cent year-on-year,” Ashish Mehrotra, MD and CEO, Max Bupa, said.

Bajaj Allianz General Insurance, which has more than 200 tie-ups under bancassurance, witnessed 32 per cent growth in sales through the channel in FY17, Alpana Singh, Head – Bancassurance & Brand Management, Bajaj Allianz, said.

Future Generali, which currently has tie-ups with four commercial banks — UCO Bank, Bank of Maharashtra, Laxmi Vilas Bank and Nainital Bank — is looking to tie up with more banks.

“We expect bancassurance to contribute to 20 per cent of our total business by 2020, up from the current 5 per cent,” Anurag Sinha, Head – Bancassurance, Future Generali India Insurance Company, said.

According to Karthik Raman, Chief Marketing Officer and Head – Products and Strategy, IDBI Federal Life, the open architecture model will call for simplified products and processes.

“The banks already have their own products to sell. If additionally they have to sell insurance products, then these need to be simpler,” he said.

The products should also be aligned with the needs of the different segments of customers, Sandeep Patel, MD and CEO, Cigna TTK, said.

Data analytics will also play a key role in ensuring that mis-selling does not happen.

“By integrating data analytics tools with the banks’ system, we can ensure that the option of selling a particular product is not done by the employees but by the system itself once you feed the appropriate information,” Patel said.