Life Insurance Fraud

A year ago, I received a text message one fine day saying that my premium of Rs 15,000 for a policy purchased from a small private life insurer was due. I was shocked because I hadn't bought any such policy from the said insurer. Not willing to let this pass, when I did some further investigation, it was found that an agent had bought a policy in my name using his existing database. Sounds very similar to a recent case involving officials of a large private bank and its allied insurance company where unaware customers were duped into buying insurance.

Trust deficit has been one of the biggest concerns of the insurance industry. Being a push product whose distribution is largely driven by banks and insurance agents, illegal policies being sold are not uncommon. Targets are said to be unreasonably high similar to any customer facing business.

Unit-linked insurance products (Ulips) led to mistrust reaching an all-time high in the period prior to September 2010. Non-viable returns were promised and the product was equated to an equity investment which lead to thousands of customers burning their fingers and buying products for the short term expecting their investments to double. Complaints mounted, policy surrenders multiplied and finally the regulator cracked down by reducing commissions, putting a five-year lock-in period and making the returns structure in Ulips more transparent. Now, Ulips are among the most transparent insurance products primarily taken by individuals with the requisite risk appetite.

As per Insurance Regulatory and Development Authority of India (IRDAI), all insurance intermediaries are liable for penalty and cancellation for fraudulent sale of policies.

Inflated returns promised or products sold in the name of fixed deposits are the usual modus operandi used to lure buyers. Policyholders are usually unaware of the policies sold until the time of the renewal when reminders are sent. Being a long-term product, only if the policy remains in-force for the entire policy term does the premium paid gets returned to the customer. If surrendered prematurely, a sum is deducted from the money being returned.

For customers with no steady income, being pushed to buy a five- or ten-year term policy can be a financial strain. Another large life insurer is also under the lens of IRDAI for allegedly making customers pay multiple premiums in place of a single premium to obtain higher commissions.

To ensure that customer satisfaction and trust is measured, Net Promoter Score is being actively used across insurance companies that measures how satisfied their policyholders are. Blacklists of erring individuals have also been created, but insurers are still shy of sharing data on an industry-wide scale.

Though this could be an ideal beginning, the fact that banks and agents obtain a lot of customer data that can be misused is a fact that cannot be denied. How the regulator and the insurers crackdown on such misuse and instantly eliminate wrong-doers from the system is a space to watch.