Stating that insurance policies are prone to fraud or mis-selling is the unfortunate “fact” of today. It’s more or less obvious to a lot of people, given the high number of customers who have experienced mis-selling or fraud. There are variant shades to insurance fraud- given the overly complicated framework of insurance policies, we are not surprised to hear from our customers that they didn’t understand the policy structure well or were outright misled into buying the wrong plan.
However, at the end of the bargain, it’s always the customer who ends up suffering while the intermediaries get their pockets full with a fat commission. But let me tell you that it’s not such a terrible world out there and if you keep digging on this article- by the end of it you will be equipped with everything you need to know about insurance mis-selling and ways to prevent it.
Let’s start with the basics-
What is insurance Mis-Selling?
By definition, Insurance Mis-selling is a sales practice in which an insurance policy is deliberately misrepresented for the sole purpose of sale. In this sales practice, a customer is more than often deceived about the policy’s suitability and given the complex structure of an insurance policy- thousands of customers fall into this trap of insurance mis-selling.
Now that you know what insurance mis-selling is, let’s dive into its consequences.
Mis-Selling and its consequences
Imagine the consequences of mis-selling wrong products where the seller hard-sell an insurance policy without understanding your actual needs and due to their inadequate knowledge about the product. Yes, after buying such a policy, you would be left with paying unwarranted premiums for years. When the time will come to claim insurance for your needs, you will then realize that the policy does not cover those risks, expenses or claims. Mis-selling of insurance policies is inevitably thriving in the market and causing serious havoc on the wallets of consumers. Unfortunately, the responsibility falls on the poor consumer to first gauge his needs and then thoroughly understand what that policy covers other than the premium amount.
While I ask you to pay extra caution, let me tell you about different types of insurance mis-selling
Common Insurance Mis-Selling Types
- Misrepresentation- Insurance policy being sold by giving false information about the policy.
- Attracting customers by giving fake information- Often, customers are mis-sold regular premium policy as a single or flexible premium.
- Miscalculating benefits- Customers are sold the high premium policy without realizing future money commitment.
- Unnecessary update of existing policy- Churning the existing policy and replacing it with new for extra commission.
- Fake promises of bonus- Insurance Policies are also mis-sold by promising extra bonuses, i.e. gold coins.
- Forcing customers to buy policies- Insurance policies are sometimes set as a precondition for opening an account so as to force the customer into buying a policy.
- Outright fraud- Insurance policies are sold by forging proposal forms and giving false information.
- Bundling insurance policies- Mis-selling free health insurance with life insurance.
Now that we know some common insurance mis-selling types, lets look into the factors leading to Mis-selling
Factors leading to Mis-Selling
- Big fat commissions- Who can resist big fat pay cheques? Agents target their natural market.
- Poor Financial literacy- There is a large sector of people who do not engage in basic research are not financially literal enough to understand the complex insurance structure.
- Not reading the document properly- Nobody has the time to read a hundred terms and conditions, isn’t it? Well that’s what people take advantage of. But who’s in a rush to buy an insurance policy? Read your document carefully, it’s very important.
Enough of cautionary knowledge already right? Let me now dive into the legality of mis-selling- what has IRDAI to curb insurance mis-selling
Steps taken by IRDA and insurance companies to prevent Mis-Selling
The basic guideline that applies to each and every sales practice and solicitation of insurance products mandates every agent/insurer to document a standardized script that needs to be regulated and filed with IRDA. Further, the standardized script must incorporate each and every aspect of the insurance policy including all benefits, services and key disclosures. It must then be instructed to every insurer/agent to strictly adhere to the script.
For the purpose of keeping a strict watch, every conversation with the customer must be recorded and filed with the company- later this can be used in case of any dispute. Therefore, there is a strict watchout for insurers/agents to not indulge in making fake promises. IRDAI guidelines also seek to provide a voice copy of the document- if the customer demands it at any time during the term of the policy.
There are also specific guidelines listed by IRDA keeping the policy holders’ protection interest in heart- mandating insurers/agents (any intermediary) to be fully transparent, honest and commit to making full disclosures about the insurance product.
“A breach of the obligations cast on an insurer, or insurance agent or insurance intermediary in terms of these regulations may enable the authority to initiate action against each or all of them, jointly or severally under the Act and /or the IRDA Act, 1999,” says IRDA
Also, IRDA regulations specify that intermediaries need to strictly abide by the rule book set out by the regulator. Any insurer/agent needs to practice sales in a fair manner and not offer any different benefits, conditions or rates than what is already stated in the script for the product.
Although despite such strict regulations, mis-selling cases still occur. Nevertheless, let us take a heroic entry here and introduce ourselves.
We at Insurance Samadhan empathetically understand all your concerns and work together with you to make ends meet and help you come out of some of the most upsetting insurance issues you ever faced.
Mis-Selling Solutions from Insurance Samadhan
At Insurance Samadhan, we find solutions to any insurance-related issue that include lapsed insurance policy, assistance in case settlement, claim recovery in case of insurance fraud, assistance to NRI’s in servicing their policies, and much more.
We begin by understanding your case then we find solutions to any insurance-related issue, i.e. mis-selling. We then represent your case at the company grievance cell, IRDA, Ombudsman and consumer court as needed.
Although we are just born with our agenda to bring justice to all your insurance-related issues with much pride we say that we already have a family of over 500 happy customers.