Quite often insurance agents provide wrong information to customers to sell policies with higher premium, so it’s important on the customers’ front also to check detailed features of the product provided in the sales leaflet before signing a policy. Insurance companies on their part are trying their best and coming up with different ways to stop mis-selling. Investors need to be self educated to understand the basic insurance concepts and should be aware about the purpose of insurance.
A common practice is seen that life insurance agent approaches customers and sell them policies telling them to pay for just limited period, say 5 years, and assure them a return of 20 times after 20 years with additional insurance benefits, whereas the actual premium payment term is of 20 years and it is a regular premium policy. Thus the customer faces the risk of policy lapse.
Problem of mis-selling has become acute with the entry of new players because of increased competition among agents to get business.
Various guidelines and practices have been outlined by the Insurance Regulatory and Development Authority (IRDA) to prevent mis-selling. Yet, some ignorant investors fall easy prey to these insurance agents. Agents and advisors are the face of an insurance company and they are responsible towards building brand equity. Industry should make collaborative efforts to stop mis-selling by providing superior training to agents/advisors and by enhancing financial literacy among customers. Last week IRDA has come out with a new guideline stating that more policy lapses are likely to cost insurance agents’ their license.
Very often the reason for misselling is the conflicting objectives of the parties involved. Misselling takes place often when there is a misalignment in the objectives of the parties involved. For instance, the investor’s objective may be to save on tax outgo, investment or life protection while the agent may be looking at fetching the maximum premium, as it will earn him higher commission and help him reach the target faster. The insurer’s objective is to create maximum corpus from a pool of well-diversified clients, so that the risk of cash crunch is minimised. When such is the situation nothing much can be done to prevent mis-seeling other than a well informed customers and diversified insurer’s portfolio. To have bigger and diversified portfolio insurers can try focusing more on untapped market like tier II and tier III cities so as to reduce several risks related to claims, lapses, etc.
Few insurance companies are coming up with innovative practices to stop mis-selling like adapting a need-based selling where a product is sold according to the requirements of the customer and matching to his income levels and lifestyle. Most insurance companies have also started the process of making a ‘welcome calls’, in which the customer is once again briefed on the various features of a product and charges applicable in order to reconfirm that the investor has take an informed decision while buying the policy.
Insurers understand the importance of after sales service and want to retain the customer which is beneficial for customers as well as insurance companies.
