Case 1: Change of Existing Policy
Mr. Birju’s was having Insurance with ABC Life Insurance. He bought the policy in 2018 and has been paying regular premiums. One day, he received a telecall. The caller introduced himself as the Relation Manager of ABC Life Insurance and asked whether he was satisfied with his existing policy. Birju trusted the caller because he had all the personal details. Later, the caller informed us that the plan was not doing well and the company had decided to discontinue the plan and upgrade to a new plan with superior features. All money from the previous policy will be credited to the new policy. Moreover, a bonus and agent commission of Rs 5 lakh will also be awarded if Birju decides to invest Rs 1 lakh in a new policy. The offer was very lucrative and Birju agreed immediately.
The proposition was straightforward, seemingly tailor-made for Mr. Birju. An inquiry about his existing policies drew an assurance that they were of no concern. The telemarketer outlined an intricate plan—he said that Mr. Birju has to pay Rs. 1 lakh yearly for a decade, promising Rs. 25 lakhs as a death or maturity benefit with an option to cancel after a year. Mr. Birju was lured by the plan and thus became the victim of insurance mis-selling.
Mis-selling comes in various forms—sometimes, customers struggle to grasp the policy due to its complex structure. In this case, he was persuaded to purchase the policy despite already owning insurance. He was trapped in that he could terminate the policy after three years and reclaim the premiums paid and accrued benefits of the existing policy.
What is Insurance Mis-selling?
Insurance mis-selling happens when someone is convinced to buy an insurance policy they might not really need or understand. This can occur because the salesperson provides wrong or misleading information to make the sale. As a result, the person might end up with a policy that doesn’t match their needs or financial situation. It’s like buying something that doesn’t quite fit or works for you just because someone convinced you it’s a good idea.
Insurance is a subject matter of solicitation which means that insurance needs to be sold on its merits and should not be sold through allurements.
What’s the Motive Behind Insurance Mis-selling?
Like any other product, the seller gets a commission, and such fraud callers are interested only in commission. They try to misguide customers for the first 30 days so that the freelook period expires, and the commission is released after the freelook period.
How Does It Impact The Customers?
Mis-selling has far-reaching consequences for customers. Firstly, it leads to financial losses as the money paid in premiums is wasted when the promised advantages fail to meet the customer’s needs. Secondly, when the customer’s family, who should rightfully benefit from the policy’s offerings or a specified amount, is left without reliable support in the long term due to the policy’s failure to deliver as promised. This situation can make them despair, especially if they lack financial assistance following the breadwinner’s demise.
Both situations are daunting for anyone, especially considering the emotional and financial impact. When hard-earned money is invested in policies that don’t fulfill their intended purpose, it undermines trust in financial systems and disrupts plans for a secure future.
Government Role in Insurance Mis-selling
IRDAI, the regulator, has taken many steps to curb such malpractices and IRDA has various control systems to curb mis-selling like
- Grievance escalation matrix and appointment of Nodal Grievance officer at each Insurer
- IGMS system of IRDA
- Freelook period
- Verification call
IRDA has an ambitious plan of achieving a 5% penetration in GDP and which is possible only if a favorable system is created.
Furthermore, the concept of a standardized script has been integrated into all insurance policy aspects, encompassing benefits, services, and essential disclosures. This guideline should be communicated clearly to each insurer and agent, emphasizing strict adherence to the script for enhanced customer understanding of policy details.
It sure does sound like a very lengthy process and since a lot of technicality is involved, many of us decide not to go after the insurance company. But do not worry! Insurance Samadhan is here to help you.
Insurance Samadhan constantly seeks the best interest of the policyholders so that nobody loses their hard-earned money.
Bottom Line
Insurance mis-selling can cause problems for people. It happens when sellers give wrong information or convince you to buy something you don’t need. This can hurt your money and your family’s future. But you can fight back. If you have a problem, tell your insurance company and they will check. If they don’t help, you can talk to Insurance Samadhan. We will help you.
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