Fearing a rising incidence of mis-selling, the Treasury has directed heads of public sector banks to put in place strong mechanisms to avoid unethical sales of insurance policies to customers.
A letter to public sector bank chairmen and managing directors said the Department of Financial Services had received complaints that banks and life insurers were using fraudulent and unethical practices in procuring policies from bank customers.
In second- and third-tier cities, there have been cases of selling life insurance to customers over 75 years old. Typically, a branch of a bank will market the products of its affiliated insurance company.
When resisted by customers, branch officials are shy about believing they are under pressure from higher ups. Insurance products are marketed when customers go to seek any type of loan or buy term deposits. In this regard, it said that the ministry had issued a circular in which it was advised that banks should refrain from the restrictive practice of forcing customers to buy insurance from a particular company.
It is also reported that the Central Vigilance Committee (CVC) has raised objections because the incentives to sell insurance products not only put pressure on field staff, but also affect the core business of banks, and the quality of advances may be tempted to suffer. Employee commissions and incentives.
“Based on these guidelines, you need to issue appropriate directions to the relevant verticals of banks to put in place robust mechanisms to avoid banks and chartered life insurers as clients of banks,” it said.
In addition, the letter also stated that it is also recommended that when purchasing insurance business, 100% KYC compliance can be ensured to be completed by the bank. According to the latest IRDAI annual report, there will be 23,110 mis-selling cases in 2021-22. The number of mis-selling complaints per 10,000 policies sold during the year was 31.
The annual report of the Insurance Regulatory and Development Authority of India (IRDAI) said the number of complaints in favor of complainants has increased from 24% in 2020-21 to 27% in 2021-22.
“Based on IRDAI’s advice, insurers have also been taking the issue of misselling seriously by conducting a root cause analysis to identify the main causes and taking appropriate steps to prevent or reduce misselling,” it said.
Some of this, it said, was to determine product suitability, to impose controls on various channels, to tailor them to channel vulnerabilities and to develop strategies for dealing with complaints of inappropriate sales.
(Aside from the title, this story is unedited by NDTV staff and published via a syndicated feed.)
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