(PTI) Concerned over the growing incidence of mis-selling, the Finance Ministry has directed heads of public sector banks to put in place robust mechanisms to prevent unethical practices in selling insurance policies to customers.
The Department of Financial Services has received complaints that banks and life insurance companies adopt fraudulent and unethical practices to take out policies from bank customers, a letter addressed to chairmen and managing directors of public sector banks said.
There have been cases where life insurance policies were sold to customers above 75 years of age in tier II-III cities. Bank branches typically push the products of their subsidiary insurers.
When customers resist, branch officials would coyly convince themselves that they are under pressure from above. Insurance products are pushed when customers go for any type of loan or buy a term deposit. In this regard, he said, the department has already issued a circular warning that a bank should not adopt restrictive practices of forcing customers to take out insurance from a particular company.
It is also reported that the Central Vigilance Commission (CVC) has raised objections, as incentives to sell insurance products not only put pressure on field staff, but also affect the core business of banking and the quality of advances can be involved in the attraction of commissions and incentives for staff.
“In accordance with these guidelines, you are requested to issue appropriate instructions to the concerned vertical of your bank to put in place a robust mechanism to prevent any unfair and unethical practice adopted by the bank and franchise of the life insurance company to take out life insurance policies life of bank customers,” he said.
Further, the letter said, it is also advised that while catering to the insurance business, banks can be ensured to be 100 per cent KYC compliant. According to IRDAI’s latest annual report, cases of mis-selling stood at 23,110 in 2021-22. The number of mis-selling complaints per 10,000 policies sold was 31 during the year.
The number of complaints resolved in favor of the whistleblower increased from 24 per cent in 2020-21 to 27 per cent in 2021-22, according to the annual report of the Insurance Regulatory and Development Authority of India (IRDAI).
“As per IRDAI’s advice, insurers have also been taking the issue of mis-selling seriously by doing root cause analysis to identify the root causes and have taken appropriate measures to prevent or reduce mis-selling,” he said.
Some of them are to check the suitability of the product, to do checks on the different channels by tuning it based on the vulnerability of the channel and to have a strategy to deal with the complaints of mis-selling, he said.
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First published: December 23, 2022, 3:28 p.m IST