Economic survey calls out 'rampant' mis-selling in insurance, banking, urges action

Eco survey 2024: Banks, insurance companies need to focus more on customers' interests

Banking and insurance sectors must resist the temptation to pursue short-term profits at the expense of the customer, the Economic Survey, tabled in the parliament on July 22, has said.

“Product mis-selling is too rampant to be dismissed as an aberration of a few overenthusiastic sales personnel,” the report, authored by Chief Economic Advisor V Anantha Nageswaran, said.

It called upon all the key financial services sector to focus on customer interests. “Acknowledgement of mis-selling and misrepresentation and compensating for consequential losses is a good business practice enjoined upon stockbroking, fund management, banking and insurance firms,” the report said.

Also read: How to avoid falling prey to life insurance mis-selling traps

Insurance companies must also strive to improve their claim settlement track record. “Prompt and reasonable settlement of insurance claims and a lower rejection rate are necessary to increase insurance penetration,” the survey noted.

Noting that over 50 percent of complaints against life insurers pertained to unfair business practices – an euphemism for mis-selling – the Economic Survey urged the industry to “think and work” for the long-term. “(Else) insurance penetration will not rise. Data for FY23 showed a decline in insurance penetration,” it said, while pointing out that 66 percent of the complaints against general insurers were about claims, including delayed and denied settlements.

Also read: New health insurance claims rule: No disputes after five years of policy coverage

The survey took a dim view of principles-based regulations that the Insurance Regulatory and Development Authority of India (IRDAI) has been increasingly focussing on in the last two years.

“When it comes to financial products, globally, ‘soft-touch’ regulations have seldom worked over a sustained period in delivering customer satisfaction and value for money. Globally, the private financial sector has repeatedly shown itself to be adept at selective or misinterpretation of principles-based regulations to its benefit,” the report stated.