The proposal aims to eliminate irregularities in sales. But a few industry experts say that actual implementation of this proposal may be difficult.
Insurance ombudsmen are currently empowered to adjudicate on cases involving repudiation of claims or any dispute concerning premium payment. A few reports indicate that there is a proposal to widen the jurisdiction of ombudsmen for monitoring mis-selling of insurance policies to boost investor protection. But industry experts claim it could be difficult to prove that a product has been mis-sold.
“Rules can be made, but how will the ombudsmen prove mis-selling? The client needs to have documentary proof to prove that a product has been mis-sold. The regulator has to issue a form with a questionnaire before a prospect signs up for a policy. This document has to be filled up by the client and signed by both the client and the advisor. Ombudsmen will be able to prove that a product has been mis-sold only if such a document is in place,” says Ramakant Mahawar, a Kolkata-based IFA.
In the past, there have been concerns over the mis-selling of insurance products. An industry executive has welcomed this proposed move, cautioning that a customer should have adequate documentary proof to prove that a product has been mis-sold. “Ombudsmen should monitor products like endowment plans and money-back plans,” says a top official from IndiaFirst Life Insurance, preferring anonymity.
“If SEBI can curb mis-selling in mutual funds, then I think ombudsmen can also be successful in eliminating irregularities in insurance sales by adopting the right procedure. But we need to wait to see what procedure the regulator is framing to whip the mis-sellers. Currently it is very difficult for policyholders to prove that a product has been mis-sold,” says Bratati Bhattacharya, a Kolkata-based IFA.
However, a few IFAs sound a note of caution. They feel that if the proposal comes through, ombudsmen have to take a decision after a lot of deliberation. That’s because in many cases, clients do not bother to read the fine print in the contract. This might lead to unnecessary litigation and the IFA might be penalized.
Currently, ombudsmen also have the mandate to examine delays in premium payment and issue of documents. During 2010-11, ombudsmen handled 17,239 complaints; at the end of the previous fiscal, 6,095 cases were still pending.