One morning you receive a call from someone who introduces himself as your relationship manager (RM) from XYZ Bank, where you have an account.
He wants to visit you at home and tell you how to enhance your returns. This gives him an opportunity to evaluate your lifestyle and your mindset. Once at home, he suggests investing in some insurance products assuring high returns and a large investment of Rs1 lakh or more.
If you seem unconvinced, he fishes out glossy brochures and earnestly maps out how your investment will grow on a plain piece of paper and how you can expect an average annual return of 10% on maturity. He is usually so persuasive that you agree and sign the papers he produces at the places indicated, without looking closely at terms and conditions, benefits and whether the policy meets your requirement. After all, he is your banker, and you don’t see why he would mislead you.
Such incidents have occurred with amazing regularity for over a decade and they continue. Unchecked. We tend to operate on ‘Blind Faith’, everywhere except with the vegetable vendor, where we haggle, negotiate and check our purchase thoroughly before buying.
When a bank sells you an insurance product, it is selling a “third party product” (TPP) or ‘para banking’ activities. They include insurance, gold coins, mutual funds, real estate, and brokerage services. They are not your usual banking services like savings, fixed deposits, loans etc.,
Bank RMs are asked to sell these products and must meet steep sales targets to retain their job. So, they have developed a modus operandi for selling TPPs. They tend to hard-sell mutual fund products to younger customers. In contrast, older ones and senior citizens are targeted for insurance products and pension plans since they usually have sizeable savings lying in their accounts.
An RM would sell a pension plan saying, pay a premium for seven years and get a lifetime pension after 10 years; or pay a premium for 10 years and start getting a pension from the second year itself, or pay a lump sum and get a pension at intervals of your choice – annual or bi-annually.
All policies are undoubtedly designed in compliance with the rules and regulations of the Insurance Regulatory & Development Authority of India (IRDAI). The catch is true benefits, returns, guarantees or death benefits of any policy are not explained to a policyholder or are often not appropriate to their requirements. Does this amount to mis-selling?
Let me illustrate with an example.
Suppose there is an insurance product where the annual premium starts at Rs25,000, the RM will pitch it to you, creating the impression that the minimum annual premium is Rs1 lakh. Or he will claim that he is selling you a single-premium product; hence, a high upfront payment, and you later discover that you have signed on to pay a hefty premium every year since you did not look closely at what you were signing.
Another type of mis-selling is when the RM draws a diagram projecting guaranteed returns of 10%pa (per annum), significantly higher than a bank fixed deposit (FD) return. In fact, the actual guarantee offered by the insurer is just 5%-6%pa and the promise of a high return is verbal and on a plain paper of no value. This is a classic way of entrapping senior citizens who are not planning on buying insurance but want a reasonable return on their savings.
Mis-selling of mutual funds (MFs) is another issue that needs a separate article sometime in future.
As a former banker, I devote some time every week to offer guidance and counselling to victims of mis-selling financial products or consumer issues at Moneylife Foundation.
Here are real stories of mis-selling that I have come across during these sessions.
• A middle-class father wanted to invest some money to ensure that his mentally challenged daughter would have assured returns over a long period. The daughter’s teacher was an insurance agent and persuaded him to purchase a life insurance policy which required payment of a hefty annual premium on the promise that his daughter would be a beneficiary after his death!
• A 72-year-old lady was lured into paying a yearly premium of Rs1 lakh for a pension plan that would start giving returns after 10 years – when she is 82. It was a strange gamble at that age. The same lady also invested her life-long savings in FDs of an unknown cooperative credit society. The idea was that the proceeds of the FDs would be used to pay the insurance premium. As it happened, the directors of the credit society are behind bars and she is worried about her hard-earned money.
• A recent case that I handled was especially depressing. A 64-year-old woman with a sick husband and young daughter was conned by her RM at a private bank. She was to receive a sizeable sum of money from a property sale and sought guidance. Her RM visited her and was so aggressively persuasive that she filled out various forms with the following implications. She broke a few FDs, even withdrew money from the public provident fund account, and was lured into investing it in seven insurance policies – two each in the names of her husband and herself and three in the name of the daughter. Some money was also used to purchase MF units. She blindly signed on the dotted line on the advice of this RM. This case is so egregious that I wonder if she was lured by glib talk alone or was hypnotised into taking such rash and irrational decisions.
For the past 13 years, Moneylife Foundation has consistently warned people about mis-selling by their banks through RMs whose job and incentives depend on their ability to bring in the high commission business. Consequently, they ruthlessly squeeze customers without sparing even the helpless aged people. But lack of awareness about financial products is widespread and people tend to wake up and come to us only after they have lost serious money.
While surfing the internet, I see advertisements and media reports about the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) cautioning against mis-selling of TPPs. These have no impact. We need RBI and IRDAI to work together to stop such mis-selling. This can happen with a few important steps.
A fair returns chart must be officially published and presented to customers so that RMs cannot lure people with fake projects (of 10% or higher returns on plain paper).
Key benefits must be stated upfront in bold.
IRDAI should standardise a questionnaire and the insurance company must record the conversation which should be shared with the proposed policy-holder and is properly backed-up for about six months. This will help in redressing a dispute.
As soon as policy is dispatched to the holder, an SMS and mail alert be sent advising to the holder to read the policy carefully and return within 15 days period if not agreeable with terms and conditions as well as any discrepancy in details mentioned in the policy.
To have proper surveillance, the branch manager should periodically review and report TPPs sold to customers to see if there is mis-selling.
Since elderly people are frequently targeted for mis-selling insurance policies, I would like to offer them a few tips.
Do not take any hasty decision under pressure whatsoever.
If you are above 60, avoid taking products that offer returns after a long time (say a decade). Let the next generation take care of themselves.
As far as possible, meet RMs be in the presence of trusted friends or colleagues who understand finance.
Learn to say “NO” if you really do not need the policy and do not hesitate to cut short calls – after all, you are playing with your life savings.
There are no policies tailored for a specific age group or income class. Each individual’s needs are different and you must buy what is suitable for you.
If you are unsure about a product that is being hard-sold to you, seek guidance from organisations such as MoneyLife Foundation, before making a decision.
You may also mail your queries to
[email protected] or its helplines after availing of free membership here: https://www.mlfoundation.in/
(Abhay Datar is a consumer activist. After working at Bank of Baroda for about 29 years, he retired as IT Manager. After retirement, Mr Datar joined the Consumer Guidance Cell of Mumbai Grahak Panchayat (MGP) in 2008. He solved many banking-related cases, including online fraudulent transactions and misuse of credit cards and ATM cards. He was a Member of the Managing Committee of MGP till March 2021. Currently, he is an expert counsellor at Moneylife Foundation, helping consumers resolve issues related to banking and insurance.)
Otherwise millions of illiterate, less read, and/or literate but ignorant people will get cheated in a big way. I say so because even a well read is not able to get his matters resolved due to the rigmalore and clumsy-circuitous laws of our country.
God save the innocent.