Wednesday, August 8, 2012

Insurance Mis-Sellings in India.

1. Fraudsters claiming to be IRDA representatives- When a consumer called Mishrilal first came to us with a complaint about fraudulent calls from people claiming to be IRDA representatives, we could hardly estimate the extent of this ongoing scam. These so called IRDA representatives claim that some ‘bonus’ has accumulated with respect to their policies and which is being allegedly polished off by their agents. All they are required to do is deposit some amount with these ‘representatives’ and they will ensure that the bonus is transferred to the policy holder. What happens after the amount is given is anybody’s guess.  Authorities having realized the gravity of the scam have been trying to warn the consumers against such fraudsters.


We understand that this is hardly a matter involving the agents directly but what really stumps us is the accuracy of the information that these so called representatives usually have with respect to the policy holdings of their victims, an obvious indication of insider involvement. A simple way to address this issue is always checking the credentials and insisting on identity proof of whichever individual the consumer is dealing with.


2. Selling policies without consumer consent- Another spin to the very same IRDA representative fraud is when these so called representatives take the money from the policy holders and then instead of vanishing with the money, very ‘honestly’ invest it in buying another policy for the consumer, albeit without his consent. These agents then conveniently vanish, leaving a hassled consumer in their wake, with his hard earned money stuck in a policy he never actually intended to buy. In most circumstances, it is next to impossible to get such policies cancelled. This fraud redefines misspelling by agents, dragging it into the territory of pure fraud.


3. Selling the wrong policy- Ok. So you were very clear what plan you wanted and with what company. Everything was in order. But what if your agent, without your consent goes ahead and invests your money in a completely different plan? Horrifying thought, especially when huge sum of money is involved. This is what precisely happened with a consumer we came across while doing a story on ULIP( For pros and cons of Unit Linked Plans or ULIP, read this story To ULIP Or Not To ULIP).


Amit Jamwal never intended to buy a ULIP. All he wanted was a simple term plan. But his agent, nevertheless, went ahead and invested his money in a ULIP. To make situation worst, disappeared without giving him proper documents. Jamwal is now stuck with a policy he never wanted, with hefty charges and two premiums paid. “I hate all agents”, he says before slamming the phone down. Understandable emotions. We empathize, barring the fact that the poor kid who was talking to him was a harmless budding lawyer-journalist. He neither was nor intends to be an agent-ever!


4. Skirting the free look period- For the uninitiated, free look period is a 15 day period starting from the date of issue of your policy within which you can opt out of the policy without any charges and with full refund (barring cuts for medical tests, stamp duty charges etc.) if you are not in agreement with the terms and conditions of the policy. This period is stipulated by IRDA during which the holder can cancel the policy or switch to another.


However, agents have been increasingly coming up with ways to ensure that the policy holders are not able to use this period for what it is intended. The most common way to get past this period is non-delivery of policy documents within the free-look period, denying the holder an opportunity to examine his policy and its terms and conditions. Our only advice in all such circumstances is vigilance- cancel your policy the moment your agent even remotely tries to stall or unnecessarily delay the delivery of documents during the free-look period.


5. Selling policies that are not needed or that are not in accordance with the financial goals/condition of the holder- This is probably the most complicated aspect of misselling and usually happens with individuals who are relatively new to the field of investment. The result is a policy holder who is stuck with a life insurance policy that protects him only till the age of 35 years and consumes 15% of his salary as premium. To address this issue, IRDA has proposed that the company should assess the needs of the holder in detail before issuing him a policy and have for this purpose, have a detailed form that covers all aspects like income, goals and risk appetite of the holder.


As we had stated earlier and as is evident from the proposals, IRDA is constantly trying to curb this menace of misselling at a macro lever. However, no such attempts can be entirely successful without awareness and vigilance at the micro level. Consumers opting for insurance must abide by a certain thumb rules like-check for credentials, identity proof of the agents, always take second opinions, never rely on one agent completely and most importantly, be very paranoid, almost clinically-in this case, that is the only thing that can save you.

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