FinMin asks banks to stop mis-selling of insurance

Mumbai: The Finance Ministry has asked the head of all the state-owned lenders to refrain from mis-selling of insurance policies by their branches.

The department has received a complaint that fraudulent and unethical practices are being adopted by banks and life insurers who act as channel partners for the banks.

In this regard, the department has already issued a circular on February 15, 2022. Wherein, it has been advised that a bank should not adopt restrictive practice of forging customers for getting insurance from a particular company. It was also conveyed that CVC has raised objection, as incentives or selling insurance products, not only puts pressure on the field staff, but the core business of banking gets affected and secondly quality of advances may get compromised in the lure of commission and incentives for staffs.

Talking to Bizz Buzz, Soma Sankara Prasad, Managing Director and Chief Executive Officer, UCO Bank, says, "We have a strict policy on customer appropriateness and suitability before selling to any customer."

Requesting anonymity, a senior executive of LIC said: "We at LIC are totally against the menace of misspelling. The reason is that it neither benefits the corporation, nor the banks that sell our policies. Rather, it benefits only the intermediaries who pocket a huge sum of money."

The modus operandi as adopted by the bank for mis-selling of insurance products is simple. Whenever a customer approaches a bank for loan related queries, then the banker concerned somehow tries to convince the customer that his all loan related queries will be addressed well if he buys the insurance policies as per the advice of the official concerned.

The customer believes that it will help them get their purpose served and hence they don't mind spending a few extra bucks in buying out the insurance policies. Here lies the catch. While the bank staff pockets huge sum of money in the form of commission, the insurance companies were bleeding. An estimate says that the bank staff gets commission against selling insurance policies in the range of 30-60 per cent of the value of the first insurance premium.