What is mis-selling in insurance?
According to IRDAI's annual report published in FY23, there were 1.27 lakh complaints filed against insurance companies.
When a tempting offer is combined with insurance policy, and, when the agent tries to oversell it, then, you too should ask counter questions. As soon as you ask questions, the agent’s focus will shift from selling the policy to somewhere else, he will try to divert the conversation in some way. Selling insurance unfairly under the pretext of wrong features or offers is called mis-selling. Mis-selling of insurance policies on a large scale is taking place in the insurance sector. With the entry of a large number of private companies, competition has increased, leading to a rise in insurance mis-selling.
What is misselling in insurance?
According to IRDAI’s annual report published in FY23, there were 1.27 lakh complaints filed against insurance companies. Out of these, more than 26,000 complaints were related to unfair business practices. This accounted for 20% of the total complaints. Misselling involves selling policies through dishonest practices, such as making of false claims.
Examples of misselling include insurance agents offering cashback, bonuses, or loans along with policies. Not accurately disclosing insurance features, hiding risks associated with the plan, and providing incomplete information are all part of misselling.
In FY23, there were a total of 81,494 complaints filed against public sector insurance companies. Out of these, 3.65% or close to 3,000 complaints were related to unfair business practices. In contrast, private insurance companies faced more than 45,000 complaints. Out of this, 50.41% or 23,129 number of complaints were linked to misselling. This indicates that private insurance companies are ahead of government companies when it comes to cases related to selling policies improperly.
No insurance company will admit that they have engaged in misselling. Agents and brokers of insurance companies, and even their employees, are selling insurance improperly to meet their sales targets and commission incentives. This includes corporate agents, such as banks which create pressure on branch managers and staffs to sell more policies.
Insurance is being sold in many fraudulent ways. Insurance plans that come with high return promises are selling like hotcakes. Everyone wants a return on their investment… In such a scenario, the promise of returns along with the policy easily traps the customer in a mis-selling scam… Whether it is a guaranteed return or an annuity plan, you will never get a return of more than 4 to 5 percent on insurance plans. But this is presented in such an exaggerated manner that you will feel that there can be nothing better than this.
Another way of mis-selling is the promise of cheaper loans. Many times, agents say while selling policies that you take insurance, the company will get you a personal loan at a lower interest rate from a bank. Here it is important to understand that giving loans is bank’s job.
Banks are also involved in mis-selling of insurance policies. Sometimes insurance policies are sold mandatorily with bank lockers, other times policies are sold by making it mandatory with home loans. Not only this, you are called when your FD matures. You are sold ULIP under the lure of better returns…
To deal with such complaints, the consumer affairs ministry has proposed that whenever insurance is sold, audio-video conversation between the agent and the customer should be recorded. This will give the customer proof of what was said to him
Audio-video recording of selling insurance is only a proposal for now. Until this is implemented, the policyholder will have to take care of their own safety. If you have become a victim of such scams, then file a complaint with the company that issued the policy. File the complaint in writing. Also write all the details. Contact the company’s Grievance Redressal Officer or (GRO). If the company does not respond within 15 days or you are not satisfied with the solution provided, then, you can file a complaint on IRDAI’s online grievance cell Bima Bharosa. The address of the website is (www.bimabharosa.irdai.gov.in/). You can also email to Complaints@irdai.gov.in. Or you can also contact IRDA’s toll-free number which 155255. You can also contact on 1800 4254 732.
It is as important for you to understand the insurance policy as it is to buy it. Without understanding, when you buy policy, you become an easy target for mis-selling scams. Therefore, you should understand all the features of insurance before you make the final decision. To avoid insurance mis-selling, do not trust the agent or broker’s sweet talks. Ask them to provide everything in writing. Highlight what they claim in the policy document. Do not trust schemes that offer high returns. Insurance is purchased for life security, not for earning returns. If you are having temptation of high returns, remember the lesson from your childhood that greed is bad.