Concerned over the rising incidence of mis-selling, the finance ministry has directed the heads of public sector banks to put in place robust mechanisms to prevent malpractices in the sale of insurance policies to customers. .
The Department of Financial Services has received complaints that fraudulent and unethical practices are being adopted by banks and life insurance companies for obtaining policies from bank customers, a letter addressed to chairpersons and managing directors of public sector banks said.
There are instances where life insurance policies are sold to customers aged more than 75 years in Tier II-III cities. Generally, branches of banks push the products of their subsidiary insurers.
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When customers resist, the branch office officials fearlessly convince themselves that they are under pressure from above. Insurance products are pushed when customers look for any type of loan or buy a term deposit. In relation to this, he said, the department has issued a circular advising that a bank should not adopt strict practices to force customers to get insurance from a particular company.
It is also expected that the Central Vigilance Commission (CVC) raised the objection, because the incentives to sell insurance products bring not only pressure on the field staff but the core business of banking will also be affected and the quality of progress may be compromised by attracting commissions and incentives for staff.
“According to these instructions, you are requested to issue appropriate instructions to the concerned vertical of your bank for putting in place a strong mechanism to avoid any unfair and unethical practices adopted by the bank and the franchise Life Insurance Company for obtaining life insurance policies from. the bank’s customers,” it said.
In addition, the letter said, it is also advised that while taking up insurance business, it can be ensured that 100 percent KYC compliance is done by the banks. As per the latest annual report of IRDAI, the cases of mis-selling reached 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 handed over in favor of the complainant increased from 24 percent in 2020-21 to 27 percent in 2021-22, the annual report of the Insurance Regulatory and Development Authority of India (IRDAI) said.
“On the advice of IRDAI, insurers are also taking the issue of mis-selling very seriously by conducting a root cause analysis to identify the major causes and taking appropriate steps to prevent or reduce mis-selling. ,” it said.
Some of them are determining the suitability of the product, putting controls on different channels to tune it based on the weakness of the channel and having a strategy to deal with complaints of mis-selling, it said.
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