Outgoing RBI Governor Raghuram Rajan, in an interview with CNBC has expressed concern over mis-selling of insurance policies in banks.
Rajan whose term is ending on September 2016 is quoted as having said, “There are areas of continuing worry. One, mis-selling of insurance. A big area of concern and it is something where we have had consumer advocates come to us with mystery shopping exercises that suggest and we have sent mystery shoppers into banks and we find that there are issues about full information, so that is an area we are going to take very seriously.”
A few days back, IRDAI too had admitted the rampant mis-selling of insurance policies by banks. In fact, the insurance regulator has asked errant banks not to force their customers to buy insurance policies.
The insurance regulator has found that many banks sell insurance policies to their customers in lieu of FDs on the pretext of better returns.
Further, IRDAI has found that when customers approach banks for housing or other loans, banks bundle such products with insurance policies despite unwillingness of customers to buy them. This strategy helps them reduce risk of default and earn decent commission from sales.
Also, many banks insist customers on buying an insurance policy at the time of availing a locker facility and at times make it a condition for allotting lockers, found the insurance regulator.
IRDAI has expressed concerns over the practice in which banks sell a regular premium policy instead of single premium policy. Typically, single premium policies are cheaper than regular premium policies as premium and commission structure of the former are very low. The single premium policies offer commission of only 2% whereas regular polices pay up to 40% and up to 7.50% in the first and second year respectively.
Last year, at a public forum, T.S Vijayan, Chairman, IRDAI had urged insurers to avoid the practice of converting insurance policies having tenure of five years or less into regular premium policies. He had said, “Insurance companies should offer single premium policies where there is a scope. This will help create happy customers and give better experience to them.”
