Finally, the finance ministry is taking notice. The Department of Financial Services has received complaints alleging that banks use dishonest and unethical methods to sell insurance policies to bank customers.
The finance ministry has instructed heads of public sector banks to put strong systems in place to prohibit unethical activities for selling insurance policies to clients due to concerns about the increased incidence of mis-selling.
According to a letter sent to the chairs and managing directors of public sector banks, the Department of Financial Services has received complaints that banks and life insurance companies use dishonest and unethical methods to get policies from bank customers.
In Tier II-III cities, there have been cases where consumers over 75 years old were sold life insurance plans. Typically, bank branches promote the insurance products of their affiliated companies.
When clients object, branch staff will sheepishly claim that they were being pressured from above. When customers apply for any type of loan or purchase a term deposit, insurance products are promoted. In this regard, it claimed that the agency had already issued a circular in which it was suggested that a bank refrains from using coercive tactics to force consumers to purchase insurance from a specific provider.
It is also stated that the Central Vigilance Commission (CVC) has expressed opposition to the idea since staff incentives and commissions for selling insurance products put pressure on field personnel in addition to affecting the banking industry’s basic operations and the quality of advances.
According to the statement, “You are requested to issue appropriate instructions to the concerned vertical of your bank for the establishment of a robust mechanism for avoiding any unfair and unethical practises adopted by the bank and the franchise Life Insurance Company for procuring life insurance policies from bank customers.”
In addition, the letter urged making sure that all banks comply with KYC requirements completely while sourcing the insurance business. According to the most recent IRDAI annual report, there were 23,110 occurrences of misselling in 2021–22. In the year, there were 31 complaints of misselling for every 10,000 policies sold.
According to the Insurance Regulatory and Development Authority of India (IRDAI) annual report, the percentage of complaints resolved in the complainant’s favour climbed from 24% in 2020–21 to 27% over in 2021–22.
According to the statement, “on the guidance of IRDAI, insurers have also been seriously addressing the problem of mis-selling by performing a root cause analysis to identify the key reasons and have taken appropriate efforts to prevent or decrease mis-selling.”
Some of these, according to the statement, include determining the product’s acceptability, putting limits on the various channels’ tweaking it depending on the channels’ vulnerability, and developing a strategy for handling complaints of misselling.