Mis-selling of insurance products continues to give sleepless nights to the regulators. By definition, mis-selling broadly refers to unfair or fraudulent practices adopted at the time of soliciting and selling insurance policies. Simply put, customers feel that the policy sold is different from what they wanted or were promised. The Reserve Bank of India (RBI) has quite candidly highlighted the rising complaints of mis-selling insurance policies in recent years. And the central bank has also raised fears of possibilities of loss of public's confidence in insurance products, intermediaries and insurance companies if such dodgy activities were to continue. Not just that! The RBI is also anxious about the consequent impact on demand for insurance which could have serious implications on insurance as an avenue of tapping savings for long-term investments for the economy.
That the Indian economy is hungry of foreign direct investments (FDI) to sustain growth is no news. And more importantly, the insurance bill seeking to raise the FDI limit in the sector to 49% from 26% is amongst the most eagerly awaited measures. While the Ministry and the insurance regulator have put their best foot forward and the bill will come up for approval in the upcoming parliament session, the regulatory woes continue to exasperate. Moreover, the amendments made under the new proposed law that suggests insurers being liable to pay a fine of up to Rs 1 crore for any act of omission by their agents, is not going down well with the insurance companies. That's because the insurance companies are in no mood to cooperate. In their latest move, the insurance companies have sought for relaxation in the hefty penalties proposed in the insurance bill for mis-selling. They believe that the proposed penalties are exorbitant and could discourage regulated entities and would not support voluntary compliance. The companies also expect a clear distinction between them and the actions of their agents. However, both the finance ministry and the insurance regulator have discerned these demands as unjustifiable and continue to be quite emphatic over safeguarding customers' interests. The authorities reckon that these stringent penalties will not only ensure that the customer's interests are protected, but also ensure that the insurers stay extra cautious towards monitoring and training of its employees. The regulator has further gone a step ahead with the suggestion of introduction of flexible agent commission framework to make agents more productive and help deepen insurance penetration.
The insurance sector polices require an overhaul is no news. However, the intense insurer-regulator tussle might whittle down the role of the regulator in battling against the knavish activities rampant in the sector. It's high time that the insurance companies act with prudence and pull up their socks to minimize the fraudulent activities. We also believe that customers too should exercise caution while buying insurance and should not fall for the bait of agents. Meanwhile, we certainly will wait and closely watch the latest developments in the sector and assure our subscribers to update and discuss the impact analysis.