Insurance is supposed to be a protection against life’s vagaries. But for many investors who bought insurance before 2010, the product itself has exposed them to more than their fair share of risks.

They were mis-sold ULIPs (unit-linked insurance plans), returns of which are contingent on the stock market’s performance.

Though insurance regulator IRDA’s move to tighten regulations for ULIPs in September 2010 brought relief to new investors in ULIPs, there is no recourse for those who had bought ULIPs prior to 2010 and lost their money. Given the high incidence of such cases, an effective mechanism to redress grievances of the insured is imperative to restore confidence among aggrieved investors. Other investors also rue the poor after-sales service in insurance.

Locked into a ULIP

One common problem seems to be bundling. Those in need of an urgent loan or other banking service such as a bank locker have been easy targets for mis-selling of ULIPs. Priya Rai, a consultant, recounts how she was arm-twisted into subscribing to a ULIP. “Basically, I ended up making an investment in a ULIP because I wanted a bank locker in 2008 to store my jewellery and documents. I applied for a locker at a private sector bank and was told by the relationship manager that I could not get a locker until I signed up for a ULIP with a private sector insurer.”

“Not only did they insist on a specific product, they also tagged the size of the locker I would bag to the premium I was willing to pay on the ULIP. I ended up committing to a ₹50,000 a year premium and am still paying it. This ULIP had high upfront expenses, because it was one of the old generation ULIPs, before IRDA imposed a cap on their expenses. Today, I am stuck. If I exit the ULIP, I feel I would be losing out, because high charges have already been levied and I might as well reap the rewards of the investment. If I stay on, I have to keep paying the premium, though I feel that today better products are out in the market,” she continues.

So, why did she give in to the arm-twisting tactics of the bank? “I could have walked out and refused the locker. But getting a bank locker at a location close to my home is very difficult.” Public sector banks that she approached either had no lockers free or asked her to hold very large sums (a few lakhs) in savings bank accounts earning low interest. The ULIP seemed to be the lesser of the two evils to her then.

Arm twisting

Delhi-based Nitin Kumar Jain was deceived by an agent who promised a loan if he signed up for two insurance policies. “I was seeking a bank loan and had been in touch with banks. One day, I received a call saying that I could avail a loan if I took two separate insurance policies.”

When he agreed to the terms, someone came to his house with the insurance documents and took two cheques for ₹65,000 and ₹85,000.

When he received the policies, he was asked to submit them to another lady, who told him that the loan was being processed and to contact her in one week. When he tried calling her later, she was not reachable, so he went to the local branch of the insurer seeking cancellation of the policy, since it was within the free-look period without lock-in.

“Immediately, I received a call from the same lady asking me why I was going for a cancellation when my loan approval was almost complete. About a week later, I received a call saying my loan has been approved and I should come to the bank in Gurgaon to complete the application and take my documents. But when I reached, I found that the lady did not even exist.” He immediately tried to cancel the policy, but the time for doing so without penalty had lapsed.

Pune-based Jaiprakash Gupta too had a similar experience where he was mis-sold insurance when all he wanted was a loan. “When I realised I had been cheated, I filed many complaints but have not received any response.”

And the same thing happened to New Delhi-based pharmaceutical store owner Amit Jaiswal, who says, that he has not received any reply to complaints made to the insurer. “It has been two months already, and I’m waiting to see whether anything materialises before I lodge a complaint with the IRDA.”

On the other hand, Bhavik Jain, a New Delhi-based businessman, had a happier tale. “One agent gave me a policy and it was not what I asked for. When I registered a complaint, I received a call from the insurer. It took around 20 days and the issue was sorted out,” he says. Insurers appointing third-party agents to promote and sell insurance is the root cause for mis-selling, according to him. “They fake everything to make a commission,” he laments.

Fraudulent practices

Some agents have gone even beyond – indulged in malpractices just to earn their bit of the commission. Scary, isn’t it? RK Swaminathan, a corporate executive based in Chennai, had agreed to a one-time premium pension plan after repeated calls from his bank’s insurance arm.

After he signed the cheque and the form, the agent forged his signature and included an annual-for-life mandate. “I got an SMS from the insurer saying your mandate has been rejected by your bank, please follow up,” says Swaminathan, who initially thought it was a fake message as he had not given any mandate. But it was the subsequent call from the bank that brought to light the criminal deed by the agent. While the bank manager confirmed termination of the guilty employee, he says his complaint with the IRDA claiming back his money has been pending for over two years. Mis-selling and frauds aside, some agents’ apathetic attitude towards their clients once the deal is clinched also has customers up in arms. VK Soundarajan, a private consultant, has a story to tell. “I took a policy and held it for about three years. At the end of the third year, they never sent me a reminder or intimation that my policy premium was due. Since I work on a ship, I went out to sea without any clue that I had to pay a premium to the company. When I got back, I got a notice from my insurer. So I went directly to the bank because I was a favoured customer and I knew the branch manager very well. Basically, they had cancelled my policy without giving me any intimation.”

“They’re all running around doing marketing and chasing targets, but they don’t provide basic service to the customers,” he adds.