Insurance Industry faces a major challenge of insurance mis selling. These mis selling are of two types:
Types of Insurance Mis-selling
- Insurance not matching with the needs of customer
- Insurance being sold on exaggerated promises
There are various reasons of such large instances of mis selling, few are given below:
- Distribution Model of Insurance Industry. Agents target their natural market. Banks push it as a bundled product along with other benefits of banking services. Brokers pushing the product as experts.
- Financial literacy is poor, the customer does not do basic research and buy on impulse.
- Customers are not reading the terms and conditions and sign on the dotted line.
Common reasons for misselling of insurance policies in India:
- Selling insurance by giving false information.
- Selling a regular premium policy as a single premium or flexible premium.
- Selling high premium policy without realizing future money commitment.
- Forging the proposal form and giving wrong information.
- Selling Insurance Policy when the customer is asking for a Fixed Deposit, this is common in Banks.
- Churning the existing policy and replacing it with new for the new commission.
- Selling Insurance Policy by promising extra bonus, gold coin.
- Selling Insurance as a precondition for opening ATM/Telecom Tower.
- Bundling Free Health Insurance with Life Insurance.
- Selling ULIPS without explaining the concept.