Mis- Selling of life Insurance products and its impact on recessionary trends of the Industry

Transcription

1 Mis- Selling of life Insurance products and its impact on recessionary trends of the Industry Mr. Parshuram Mishra Asst. Prof in Finance, Srusti Academy of Management, Bhubaneswar, INTRODUCTION: Insurance as a financial product: Insurance is process in which uncertainties are made certain. (Mac Gill). Insurance is an instrument of distributing the loss of few among many. (Disnadle). Insurance may be described as a social device whereby a large group of individuals through a system of equal contributions may reduce or eliminates certain measurable risks of economic loss common to all members of the group. (Encyclopedia Britannica).From the above three definition it is clear that the basic purpose of insurance is to transfer the loss of a person(s) to the insurance company which can easily spread it over a large number of policy holders. To protect the interest of and secure fair treatment to policyholders Mission statement IRDA. IRDA the regulatory body declares to protect the above interest of policy holders. Mis Selling: In a definition quoted in Wikipedia, misselling refers to the deliberate, reckless, or negligent sale of products or services in circumstances where the contract is either misrepresented, or the product or service is unsuitable for the customer s needs. For example, selling life insurance to someone who has no dependents is regarded as mis-selling. Mis-selling broadly means unfair or fraudulent practices in soliciting or selling policies not sought by a customer. Or when a customer feels the policy sold to him is different from what was promised. As the name suggests, it involves selling of products by giving false or partial information.. - Miss selling of insurance product, Jagendra Kumar, Ex. CEO, Pearl Insurance Brokers, Vol. XIV, No.-5, IRDA Various ways of Mis -Selling Insurance penetration and insurance density for last five years are as follows: Following instance of mis-selling are common in India as observed from the concept of mis selling from the above paragraph: 1. Exclusions is the part which agents don t explain to buyers. This part explains the conditions in which the insurer does not provide protection. 2. As some of the agents do practice of luring customers with a range of attractive and unrealistic offerings. 3. Many agents do handwritten calculation that can be easily manipulated. Therefore, it is better to ask an intermediary for the insurer s standard illustration of the plan chosen to buy. 4. Don t let agent to fill the form on your behalf, do it yourself. Do read policy documents- its exclusions, its benefits carefully; then fill up the form. Also check the policy name and confirm whether it is the same which has been selected. 5. Some agents skip providing medical details as it lead to delay in buying. However, it is one of the most important parts that directly impact the claim settlement process. 6. Some of the agents try to lure with unbelievably charming products. There are high chances that the agent might be offering a few unrealistic rewards. Recession in Insurance Industry A study of various facts associated with the growth or long term trend about insurance industry reveals the following facts. Year Insurance Penetration (premium to GDP) Insurance Density (Premium in $ to population) No of new policies issued (in lakhs) First year premium 1,09,894 1,26,398 1,13,966 1,07,361 1,20,320 (Including single premium)(cr.) Total Premium( Cr.) 2,65,447 2,91,639 2,87,072 2,87,202 3,14,283 Individual Business in Force (in no of policies) (in thousand) 3,18,927 3,29,187 3,35,284 3,36,112 3,34,808 Data source: IRDA- Hand book on Indian insurance statistics 59

2 A study of various indicators of insurance sector relating to above five years data reflects a recessionary trend in the insurance sector which has become a cause of concern for the industry as well as for the economy as a whole. When we try to find out various associated reason of such recessionary trends out of different connected reasons mis selling by the industry comes as one. Insurance as a financial product and subsequent understanding of the concept of mis- selling as a concept if observed it is found that both the policy holders and agents when they enter into any life insurance contract do not give primary importance to security aspects in India. Savings for financial benefits comes as a priority at the time of selling an insurance product by an agent. Similarly when an individual purchases an life insurance product he either purchases it as an avenue of tax savings or for getting promising financial return which contrasts with the basic purpose of insurance contract. As a result both stakeholder finds difficulty in long run and the entire insurance industry dwindle in mess to grow further. A clear understanding of the concepts of insurance in the beginning for both the agents and the policy holders is an inevitable requirement to reach their defined goal. Ethical communication and sound HR practices in insurance sector is a key to effective customer relationship and organizational growth. A television commercial by a leading insurance company shows a financial adviser being hounded by a devil-like creature who disappears when the adviser continues to give the right advice to the prospective client and another leading insurer had launched a campaign explaining the importance of paying attention to the basics before buying their insurance product. At least these two stories sensitise us the importance of right information to the client as integral part of getting a sustainable client. But hardly anyone understands it, rather each one is interested in achieving a very short term objectives. As a result advisers in the industry are engaged in push selling an insurance product without understanding the insurance needs of person as per one s disposable savings. There is enough evidence to suggest insurance is often mis-sold. In fact, the industry now accepts this and the sector regulator have instituted reforms to control the menace, but not up to their desired atmosphere. -Miss selling of insurance product, R. Venkatesan, Vol. XIV, No.-5, IRDA Objective: This study finds issues around stagnation of insurance sector in India. Mis selling is found to be one of the major factor of loss of trust of investors in the sector. It tries to find out various ways by which an investor is trapped by luring him about his financial prosperity, instead of highlighting the main objective of securing one s life against risk and uncertainty as the primary objective of insurance. It tries to establish the fact that this approach of mis selling as a major contributor for the recession in the industry. Research Methodology During the study most of the data used are collected from both primary and secondary sources and the secondary sources are mostly from IRDA website publication like journals and annual statistical reports. Primary data are collected by applying convenience sampling techniques to analyse customers perspectives. Analytically the data is assessed to find conclusions. No statistical or mathematical design is used to establish conclusion. Inference is drawn based on analysis of facts from the collected data. Literature Review The recent schemes of Government of India "Jandhan to Jan Suraksha" in bringing almost 200 million Indians to Financial inclusion & Insurance Coverage are the best example of effective communication. This should provide "lessons of good practices" to change the profile of a product from "Push Factor" to "Pull Factor", - Focus Role of communication and HR practices in Insurance Industry, B.K.Sahu,Volume-XIV,No-8, IRDA Insurance firms need to maintain transparent communications with customers. As a service industry it is important for insurance companies to know that they work on the principle of uberrimma fides (utmost good faith). - The role of HR and Communication practices in the Insurance Industry Management lessons for excellence, Dr.N.Sivakumar, Volume-XIV,No-8, IRDA A lot of the hard sales push in insurance draws upon the basic human emotions of fear and greed. The minute you feel that the agent or distributor who may well be a friend, a family friend or a neighbor is talking of very high returns with very little risk, stay away. - Miss selling of insurance product, R. Venkatesan, Vol. XIV, No.-5, IRDA According to the South Carolina Supreme Court, Insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered. - Miss selling of insurance product, R. Venkatesan, Vol. XIV, No.-5, IRDA Complaints on unfair business practices affect the image of the insurance sector. This would significantly impact the initiatives aimed at enhancing the level of insurance inclusion as measured by indicators such as insurance penetration (measured as ratio of premium to GDP) and insurance density (measured as ratio of premium in USD to population). - Miss selling of insurance product, T.S. Vijayan, Vol. XIV, No.-5, IRDA Data Analysis 60

3 From the study of the questionnaire of policy holders following facts have been revealed. Question Why did you purchase the insurance policy? (reason you can tick one, two, three or all) Response To get more return on your to make your to save taxes any other reasons investment family secured Relative weight 32% 29% 31% 8% Question - 2 Do you know that the main purpose of life insurance is to protect your family and assets financially in case of unforeseen events and as a means of investment is poor rated? Did not analyse so specifically at the time of taking up the policy Relative weight 27% 26% 47% Question -3 Did the agent show you hand written calculations about promising return at the time of selling the product? Relative weight 69% 31% Question - 4 Did the agent show you any published standard calculations about the return by the insurance company at the time of purchasing the insurance policy? Relative weight 9% 91% Question -5 Do you know that insurance agents try to sell that product which gives them more return? Relative weight 21% 79% Question - 6 Did you know that a life insurance product is a long term product and if you redeem it half way you will lose a lot on your expected return? Relative weight 17% 83% Question -7 Have you signed the offer document after reading it? Relative weight 11% 89% Question -8 Did you fill the offer document yourself? Relative weight 8% 92% Question -9 Did the agent take a medical examination report from you? Relative weight 5% 95% Question -10 Did any of your policy lapse due to default of non-payment? Relative weight 37% 63% Question - 11 What are the reasons of your policy being lapsed? (You can tick one, two, three or all as your observed reasons) Response Financial problem due No more interested in Tax savings no more any other to any reason insurance product required reasons Relative weight 42% 29% 17% 12% Findings 1. It is observed that when a policy holder takes up a life insurance policy he almost assigns equal importance to his three basic motives like investment, security and tax savings. 2. It is observed that only a minority of the policy holders are aware that investing in insurance is poor rated as investment, majority responded as no or did not so specifically analyse. 3. At the time of soliciting prospects agents on most of the occasions show his own hand written calculations about expected return to the policy holder. 4. In most of the cases agents don t show any published statements about past or future trends of return from the scheme to the policy holders. 5. Most of the policy holders do not know that insurance agents try to sell those policy which assures them a good incentives 61

4 6. In many of the cases it is observed that policy holders are ignorant about the fact that life insurance products are long term financial products. 7. As observed it is found that policy holders do not read the proposal form before signing it. 8. Proposal forms are not filled in by the policy holders themselves in majority cases. 9. As observed it is found that policy holder do not for oneself finds out his medical examination report. 10. As is observed in one third of the cases policy is lapsed or discontinued by the policy holder 11. The prominent reasons of the policy being lapsed or surrendered is found to be either financial difficulty or taking any other policy or investment avenue which appears to him to be more promising or tax saving as a reason is no more required. CONCLUSION 1. It is concluded that when a policy holder takes up a life insurance policy his primary motivation is not protecting financially his family which is the primary objectives of insurance. 2. Most of the policy holders are not aware of the relative worth of life insurance policy as an investment avenue. 3. In many of the case agents try to show an expected promising return from the investment opportunity on his own accord to convince the client, which often founds to be misleading information without much logic. 4. Usually neither insurance company nor agent emphasise on showing past trends of return to policy holders which are based on facts and evidence and in the absence of it policy holder is subjected to a profound illusion. 5. Often insurance agents try to sell a policy which gives them a good incentive and a policy holder usually is ignored of such short term intentions of agent and many a time fall prey to such designs. In some cases it is observed that policy holders are suggested to close one policy and to take a new policy from the same agent in promise of getting higher return. 6. In many of the situations policy holders are unaware of the fact that it is a long term product. This fact becomes a prominent reason for most of the policies either surrendered or lapsed in the mid-way. It becomes a major reason for investor becoming dissatisfied on insurance industry. 7. As the proposal form is not properly read and understood by the policy holder he remains in ignorance about many facts relating to his contract with the insurance company which is found later on, when he becomes subjudiced in situations of disputes which become one of the reason for policy holder becoming dissatisfied on the insurance industry. 8. Proposal forms are not filled in by the policy holders themselves in majority cases which they should have themselves as per law and the agents responsibility is to ensure it which one avoids intentionally. And this fact does not become detrimental to the insurance company not to the agent, it only affects the policy holder in his difficulties, which add up to his woes. 9. As in many cases agents arrange medical clearance certificate for the policy holder or a doctor is fixed with prior arrangement to give blank certificates which are only filled by the agent as per suitability to the insurance law to be a fit case to become a policy holder which become detrimental to the policy holder at the time of claim settlement. Because of this fact the South Carolina Supreme Court has rightly pointed out that, Insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered. - Miss selling of insurance product, R. Venkatesan, Vol. XIV, No.-5, IRDA 10. An increasing reason felt by insurance industry is that the policy holder either surrendered or the policy is lapsed in half way which makes the investment decision of the insurance firm complicated. It adds up to the problems of both the insurance firm and the policy holder. 11. The reason of lapsed policy is found to be either financial difficulty of the policy holder or one is taking up any other investment avenue. Both the reason appears at later stage only because that the policy holder didn t understand the basics of taking up an insurance product from beginning which become harmful to him at later stage. All the above facts justifies that mis selling is subjugated on the policy holder in different ways at different level which later on transmitted into one s dissatisfaction which becomes viral and creates many untruth about insurance industry which has become a growing reasons for stagnation of the insurance industry in recent past. Appendix: Questionnaire -1: For Policy Holder Part A: Basic information 1. Name of the policy holder: 2. Name of the insurance company 3. Policy No./ Scheme Name: Part B: Subject Information 1. Why did you purchase the insurance policy? (reason you can tick one, two or all) a. To get more return on your investment b. to make your family secured c.to save taxes d. any other reasons 62

5 2. Do you know that the main purpose of life insurance is to protect your family and assets financially in case of unforeseen events and as a means of investment is poor rated? a. yes b. no c. Did not analyse so specifically at the time of taking up the policy 3. Did the agent show you hand written calculations about promising return at the time of selling the product? 4. Did the agent show you any published standard calculations about the return by the insurance company at the time of purchasing the insurance policy? a. yes b.no 5. Do you know insurance agent tries to sell that product which gives them more return? 6. Did you know that a life insurance product is a long term product and if you redeem it half way you will lose a lot on your expected return? a. yes b. 7. Have you signed the offer document after reading it? 8. Did you fill the offer document yourself? 9. Did the agent take a medical examination report from you? 10. Have any of your policy lapsed due to default of non-payment? 11. What are the reasons of your policy being lapsed? (You can tick one, two, three or all as your observed reasons) a. Financial problem due to any reason b. No more interested in insurance product or interested in any other insurance scheme c. Tax savings no more required d. any other reasons 63