Insurance companies are joining hands to fight the rising cases of insurance fraud and insurance mis-selling.
It is difficult to pass judgment on the insurance companies or the fraudsters. Like every industry, the insurance agents have targets to meet. Hence, few insurance agents might resort to mis-selling of insurance policies.
However, in a bid to safe guard the reputation of the Indian insurance industry, Insurance companies are coming together to minimize fraud and also mis-selling.
Mis-selling can simply said to be selling an Insurance Policy which is not the right product to the customer. Mis-selling happens in all industries, but the insurance industry is witnessing an increasingly high mis-selling issues. In the long-run, such mis-selling is not good for Indian Insurance companies.
The popularity of life insurance for tax benefits as well as protection makes it an easy and effective trap. Most fraudsters are either former employees of insurance companies or insurance sub-brokers. These people have access to the database of clients of insurance companies and use it to lure victims.
Insurance accounts for over 12 per cent of the financial assets of Indian households, according to the Central Statistics Office. Over 2,000 cases of fraudulent sale of insurance products have been registered during the last one year, while the industry is estimated to have lost Rs 100 crore potential revenue during the period.
The formula to dupe is simple: You get a call promising a free gold coin or interest-free loan on purchasing an insurance policy. Once you ‘bite’, a person comes around to collect the so-called ‘insurance premium’ for the new policy or to surrender an existing one for another. The fraudsters take the personal details and promise to fill the form themselves. Then, they simply disappear with the premium amount.
Read Ernst&Young report on Insurance Fraud in India.
Insurance firms believe that the fraudsters have a hit rate of 30 per cent, which is, for every 10 calls made by the fraudsters, at least three customers fall prey.
“We have received 500-odd complaints on this and we have seen a significant increase in the last six months,” said Rajesh Relan, Managing Director and country manager of PNB MetLife.
Reliance Life has registered over 200 FIRs across India to check the mis-selling menace. Seven people have been arrested and 13 detained by the police for interrogation.
HDFC Life has filed over 200 complaints in the last four months. In fact, fraudsters have gone to the extent of using insurance regulator IRDA’s name to make a sale.
VERIFICATION PROCESS: Independently, insurance companies have started a policy verification process, wherein they call the customer to confirm if he/she really understands all the terms of the policy.
“Customers have to be alert and not fall prey to any person or entity making fraudulent offers of lucrative loans or gains,” said Anup Rau, CEO, Reliance Life Insurance.
One way to reduce the insurance frauds is to collect the first premium electronically only. This is a tedious activity, but has the potential to save the Indian insurance industry from fraudulent folks out there.
In the first quarter of 2012-13, IRDA has noted 76,000+ complaints, and more than 50% pertain to ‘unfair business practices’.
- Swinton fined £7.4m for mis-selling (bbc.co.uk)
- Insurance broking giant fined £7m for mis-selling ‘extras’ (independent.co.uk)
- Insurance companies rejoice on hike in FDI cap (moneycontrol.com)
- Use These Tips When You Are Purchasing Insurance. (finance-411.com)
- Outsourcing Insurance Policy Administration (insuserve.wordpress.com)