The fact that personal insurance, mostly life insurance policies are prone to miss-selling is now a well-documented fact. There are many shades to a miss-sell—sometimes customers don’t understand the policy well as the advisor is unable to explain complicated structure of insurance-cum-savings plans, ULIPs and sometimes some advisors deliberately mislead the customers into buying the wrong plan as they miss-sell it more as investment product with good returns rather than an insurance plan to procure more business revenues and recognition.
In all these instances, it is the customers who end up with a loss—they lose if they stay on and even when they opt out because they end up paying a heavy surrender penalty. On the other hand, intermediaries, who get to pocket a fat commission that’s also front-loaded, rarely suffer.
According to Chopra, aggressive revenue targets without need-based selling are contributing factors as well. Recently authorities has objected life insurance advisors to promote their business recognitions like MDRT etc. which might miss lead to pull business from vulnerable people. This is a very vital source of miss selling insurance products. Moreover on trying to meet this business recognition most of the advisors cannot get into detained analysis of clients inputs or need as this business awards are eligible for business procured during a limited period time. Based on this recognition the advisors have to move one person to the other very aggressive and find less time for need based financial planning. Unfortunately it mean that these insurance advisors are busy with their own financial planning rather than of their clients, surpassing their basic duty as a trust worthy advisor.
It is for this reason that despite regulatory reforms, the insurance industry has not been able to improve persistency of customer by a huge margin.
“Insurance products should allow customers to get out of a policy with low surrender charges. Also, at the time of sale, returns from a policy should be explained very clearly and this means the benefit illustration should carry the net yield, particularly for traditional plans. Lastly the commission could be evenly distributed as in non-life products,” said Mehta.