Mis-selling of insurance policies by banks (bancassurance channel) is on the rise, thanks to high commissions and business links. Several banks have invested in life insurance companies and, hence, there is a push for selling policies to bank customers. However, bank officers are now demanding that top management be restricted from setting targets for bank employees to cross-sell insurance products to customers.
"With utter dismay, we have found that no action has been initiated from any of the authorities till date to try to curb this menace of cross-selling in banks, although we sent a letter with all the details way back in August 2017. Even today, the situation is the same, if not worsened," says a letter from All India Bank Officers' Confederation (AIBOC). The Confederation had sent a letter to Indian Insurance Regulatory and Development Authority (IRDAI) chairman on 3 August 2017.
In this letter, DT Franco, the then general secretary of AIBOC had stated, "Instead of setting unrealistic 'cross selling' targets for its employees and officers, the bank management would do well to focus on its core banking areas such that customer trust is reinstalled. Also, just in case any 'cross selling' activity is tried upon, the welfare of the bank and its customers should be kept in mind instead of just incentive mongering on the part of some self-centred officials."
The letter provides clear proof of how Reserve Bank of India (RBI) continues to ignore consumers and non-government organisations (NGOs) which have protested against the mis-selling of insurance policies by banks without regard to customer harassment. The travails of bank officers forced to meet targets and the cost of selling insurance are also issues brought out in the letter.
Furthermore, the bank staff are specifically trained and recruited to discharge only banking services. They have neither the training nor the technical knowledge to even understand the business of insurance and all its nitty-gritties, let alone explain that to customers, the AIBOC letter says referring to observations made by RBI after making incognito visits to some of the branches of public and private sector banks.
(i) In some branches, there are no qualified / trained staff to market the insurance products;
(ii) No record of business sourced because of third parties is maintained by the branches / offices;
(iii) No specific due diligence on the needs and capabilities of the customer is being undertaken and recorded in most branches, no record of due diligence reports were available at most of the branches;
(iv) Suitability and appropriateness of the product to the requirements / profile of the customer was not examined by some of the branches, the objective of sales appeared to be mostly to achieve the targets;
(v) It could not be verified whether detailed terms and conditions of the policy and charges were explained to the customers;
(vi) In a few branches, premium for the policy was debited to the customer's account without written mandate of the customer;
(vii) Majority of the branches did not inform the customers about the availability of similar products from other service-providers;
(viii) Cross-selling of the Third party product was made mandatory in a few banks as part of terms and conditions of their own product;
(ix) Many bank branches did not give the customers the option to avail products from other service-providers and insisted for insurance cover only from Companies with whom the Banks have a tie up;
(x) A few bank branches received complaints from customers regarding forced selling / mis-selling of third-party products, but most bank branches do not have appropriate mechanism to capture such complaints; and
(xi) There was no separate system for recording complaints on the sale of third-party products by the bank branches.
It is not surprising, then, that mis-selling of insurance is so rampant in our country. How can somebody, who is himself largely ignorant of the nuances of insurance be expected to provide sound advice to all customers?
has been reporting such rampant mis-selling for the last several years. After receiving numerous such complaints about banks cross-selling risky investment products, many of which are from senior citizens, in April 2013, Moneylife
Foundation took up this issue with the RBI (RBI). The Memorandum, asked RBI to free the system of mis-selling of financial products by bankers, misusing the savers’ trust. (Read: Moneylife Foundation memorandum to RBI on mis-selling by banks
Over the past few years, we have heard numerous such cases where banks have used the financial information of their clients and have exploited this to sell products that more often than not, are not suited to the client’s needs. Such hard-selling bankers are aptly described as banksters these days, operating with a licence to cheat from top management.
Banks and insurance companies have unrealistic monthly targets which often leads to mis-selling of policies to those who are easy targets. Insurance policies are sold by banks when the customers may think they are investing in a fixed deposit (FD) or ELSS (equity linked saving scheme).
Regular premium policies are still being sold when bank customers think they are buying single-premium policy with no further obligation to pay every year. Single-premium policies usually have cover less than 10 times the premium. It means that the maturity amount is taxable, but customers may not even realise it until the policy deducts tax at source on the maturity amount.
Insurance policies are sold in the name of son or daughter or sometimes even in the name of grandchildren when senior citizen customers do not qualify due to age limit.
Senior citizens with comfortable savings are being systematically targeted and defrauded by insurance companies. What is worse, this organised loot is done by relationship managers of the best banks and their insurance associates, with the top management turning a blind eye to the fraud. The mis-selling is almost like a template.
The bank relationship manager convinces the senior citizen to buy a bunch of policies—often as a gift for children and grandchildren. These policies are portrayed as fixed deposits with insurance benefits but are, in fact, policies requiring payment of hefty annual premiums. Consequently, the annual premiums range from Rs1 lakh to Rs5 lakh, which the seniors are unable to pay and the policies lapse. (Read: How Insurance Mis-selling Defrauds Senior Citizens
A few years ago, a dubious relationship manager of ICICI Bank’s Pune branch systematically ripped off a number of senior citizens by conning them into buying multiple, single-premium insurance policies as a succession planning exercise where the beneficiaries were the children and grandchildren. In one case, 12 policies sold to an 80-year-old totalled over Rs62 lakh. His brother, 84, was sold several policies adding to over Rs1 crore.
An 86-year-old had his signature forged in policy documents. A 77-year-old doctor was sold a single-premium policy of Rs70 lakh and learnt that she was conned; she needed to make another five instalments of Rs70 lakh or lose everything. The Bank conducted an inquiry and has paid back two of the victims after Moneylife’s intervention.
Banks sell more of traditional insurance products for commissions. Traditional insurance products are frontloaded with 35% to 40% first-year commission. It is high time IRDAI revamps traditional products by reducing the first-year commission. Traditional insurance products also have pathetic surrender value.
Customers lose out with traditional products whether they continue paying premium or not.
The RBI and IRDAI are fully aware of problems as well as solutions.
Here are demands put forth by AIBOC...
- To deposit all the commissions / incentives earned, in the Commission Account of the Bank rather than shelling out the money to individuals and thus to encourage them engage in more and more mis-selling.
- Cross-selling should not carry weightage in the appraisal of top executives to staff to avoid force selling.
- A separate vertical should be created for cross-selling so that the public sector banks (PSBs) do not shift its focus from core activities and thereby contribute to the growth of the nation and remain viable.
- The earning on account of commission on cross-selling should also find a place in public domain for all public servants as per the Lok Pal bill in order to maintain total transparency and comply with the govt. guidelines.
- A detailed investigation is carried out by investigating agencies such as Central Bureau of Investigation (CBI), Central Vigilance Commission (CVC), IRDA, and RBI to keep the banking system transparent, risk free and confidence of the customers on the PSBs remain intact.
- To stop all such lavish functions at the banks cost, which includes cocktail dinners, foreign / inland tours.
You may also want to read…