Insured, but where is the protection?
Published by India Today
Abhishek Kumar's role: Quoted
Abhishek Kumar explained that sales incentives at every level drive mis-selling, that bank staff can pressure customers seeking loans or lockers, and that premium-linked commissions favour costly investment-linked policies over term cover.
What Abhishek Kumar said
Why is insurance mis-selling so common in India?
In my view, the main reason is the incentive structure. From senior officials at banks and insurers down to junior staff and agents, everyone earns more by selling more, so products are pushed to meet sales targets instead of the customer's needs. Poor financial literacy among buyers leaves them exposed to these practices, and regulatory oversight has been too weak to stop them.
Why do people end up buying insurance at a bank when they only came for a loan or a locker?
When someone walks into a bank wanting a loan or a locker, the bank's officials are in a strong position to put pressure on them. The customer needs something from the bank, and that gives staff leverage to push insurance products the person might not need at all. Many people end up holding policies they never set out to buy.
Why are agents more inclined to sell investment-linked policies than term insurance?
Commission is linked to the size of the premium, not to the amount of risk cover the policy gives. So agents have a reason to persuade customers to buy costly policies that combine investment with cover, rather than cheaper term insurance, even though term cover may serve their protection needs better.
What is policy churning, and why does it happen?
Insurance commissions are front-loaded, with most of the payout coming in the first year of a policy. This encourages churning: some agents persuade customers to give up their current policies early and take out fresh ones, simply so that the agent can earn another first-year commission.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on insurance
Part of a series on insurance, the article argues that the GST cut on premiums leaves deeper problems untouched. It cites ombudsman and regulator data on complaints, claim rejections and mis-selling, the role of commissions and bank sales channels, and calls for reform of commission structures, product mix and regulation.
Publisher source
Insured, but where is the protection?