Will the plan from the Consumer Affairs Ministry result in an end to insurance misselling? Pros think that's not probable

 Will the plan from the Consumer Affairs Ministry result in an end to insurance misselling? Pros think that's not probable

Will the plan from the Consumer Affairs Ministry result in an end to insurance misselling? Pros think that's not probable

Industry observers believe that in order to decrease mis-selling and boost renewal rates, IRDAI's greater surrender value offer and modification to the current front-loaded commission structure may be more successful.

The Consumer Affairs Ministry suggests recording sales presentations to stop insurance plans from being missold.

The insurance industry is agitated by the Consumer Affairs Ministry's suggestion to stop the mis-selling problem.

However, according to industry experts contacted by Moneycontrol, the idea to guarantee video recording of all sales pitches made by intermediaries is unrealistic given the current state of affairs.

Former Insurance Regulatory and Development Authority of India (IRDAI) chairman Subhash Khuntia said, "It might be challenging to document all the sales presentations and conversations. Sales conversations may take place across many encounters, and some may need protracted bargaining.

The Times of India reported on January 3 that Consumer Affairs Secretary Rohit Kumar Singh recommended insurance intermediaries to save audio-visual evidence of their sales presentations in a letter to Financial Services Secretary Vivek Joshi. This will demonstrate that the agents gave prospective policyholders a thorough explanation of the policy's terms and conditions.

The idea from the Consumer Affairs Ministry originated from the many complaints that different consumer forums received. The Council for Insurance Ombudsman's annual report for the year 2022–2023 states that 58% of the entertaining (eligible) complaints that the ombudsman offices nationwide handled were related to mis-selling.

Furthermore, mis-selling complaints included 'unfair business practices', which accounted for 20.5% of all complaints, according to IRDAI's annual report for 2022–2023. Approximately 89% of all complaints against unfair business practices came from the private sector.

Insurance brokers that sell products online or via telemarketing are already required by IRDAI's distance marketing standards to keep records. These recordings may be used by corporations and consumers to support their claims when mis-selling complaints are brought to the Insurance Ombudsman offices for adjudication. Customers have up to three years to contest policy sales based on these recordings, according to Shilpa Arora, chief operating officer of Insurance Solutions, a business that assists policyholders in taking their concerns further with the insurance company and ombudsman offices.

However, the government's directive is not being carried out in practice. Companies are often requested to provide these recordings as proof, but they don't. At the Lokpal level, these corporations eventually lose cases, he added. The Consumer Affairs Ministry's latest measures now want to make sure that all conversations, including in-person ones, are recorded.

For the sake of policyholders, use plain language

Sales presentations often focus only on the benefits of insurance plans, ignoring exclusions—expenses the policy will not cover—and other restrictions and conditions.

"It could be more useful and practical if the (Consumer Affairs Ministry) proposed that inclusions and exclusions be made plain. Even today, all insurance providers must provide a summary of the products' primary characteristics with the policy paperwork. To make it more beneficial, Khuntia said, "it must be properly implemented and any issues or gaps should be brought up with the regulator." Additionally, he thinks that standardized products with regulator-tested features and clauses, such as Arogya Sanjeevani, Corona Kavach, and Corona Rakshak, are policyholder-friendly and remove the need to interpret complicated policy wordings.

Policyholders often lack the time to study the whole document or all of the provisions in order to comprehend the legalese and technical jargon. Khuntia emphasized how crucial it is for middlemen to inform their clients about both the product's shortcomings and its outstanding benefits.

An typical investor should be able to grasp the major terms and conditions if they are presented on a single sheet. According to Monica Halan, author of Let's Talk Money and a lifelong insurance industry analyst, plans are now portrayed as traps and not in the best interests of investors.

monitoring banks

Industry observers report that bancassurance channels, as opposed to individual agents, are the source of many mis-selling complaints.

Halan believes that the Reserve Bank of India (RBI) should be in charge of putting an end to these kinds of sales in banks. "Suitability requirements for every sale must be established by the banking regulator. Because IRDAI and SEBI are unable to control banking personnel, bank misselling persists. RBI must put an end to irrational, poisonous selling.