The insurance sector in India is poised for transformative changes with the introduction of digital platforms like Bima Sugam and a renewed focus on ethical practices. Recently, IRDAI (Insurance Regulatory and Development Authority of India) chief, Mr. Debasish Panda, raised critical concerns about the mis-selling and force-selling of insurance policies by banks. These practices, which often exploit the trust customers have built with their banks over decades, are being addressed through regulatory reforms and innovations like Bima Sugam.
This article delves into the IRDAI Chief’s directives, the role of Bima Sugam, and how these measures aim to revolutionize the insurance industry.
The Problem of Mis-Selling and Force-Selling by Banks
When customers enter a bank, they expect to conduct core banking activities such as depositing money, withdrawing funds, creating fixed deposits (FDs), or taking loans. However, it’s not uncommon for customers to leave the bank with something they never intended to buy—an insurance policy. Many people have faced situations where they went to the bank for a loan or FD but were compelled to purchase insurance as a prerequisite. Such practices, termed mis-selling and force-selling, erode customer trust and defeat the purpose of providing financial security.
Banks, as the largest distributors of insurance policies for private companies, have access to an extensive customer base. While this relationship provides a robust distribution network, it has also been misused, with customers being sold unsuitable or unnecessary policies. For instance, senior citizens looking to invest their retirement savings in FDs have been coerced into buying endowment policies, locking their funds in long-term commitments with annual premium obligations.
Also see: Whole time member Life Position IRDAI recruitment
IRDAI’s Stand on Responsible Banking
Mr. Panda emphasized that the core business of banks is banking, including lending, deposits, and other financial services. Selling insurance should remain incidental to their primary operations. Banks must act responsibly, leveraging their customers’ trust to provide suitable products transparently rather than pushing policies for commission-driven motives.
Key Points Raised by the IRDAI Chief:
- Transparency in Sales: Banks must provide clear and detailed information about insurance products, including their pros and cons. This ensures that customers can make informed decisions.
- No Coercion: Customers should be given the freedom to make informed decisions without being pressured into buying policies.
- Focus on Core Activities: Banks should not prioritize insurance sales over their primary responsibilities, such as providing loans, deposits, and other banking services.
Also see: IRDAI Concerns over High Auto Cover commissions
Introducing Bima Sugam: A Game-Changer for the Insurance Industry
Central to IRDAI’s vision of reforming the insurance sector is Bima Sugam, a comprehensive digital platform designed to revolutionize the way insurance products are sold and purchased.
What is Bima Sugam?
Bima Sugam is a one-stop digital platform where all insurance products will be available, enabling customers to:
- Compare policies from multiple insurers.
- Evaluate features, benefits, and costs transparently.
- Make informed decisions tailored to their specific needs.
How Bima Sugam Addresses Key Challenges
- Eliminating Mis-selling and Force-Selling: By offering a unified platform, Bima Sugam empowers customers to independently research and choose policies, reducing reliance on intermediaries.
- Transparency: Customers can access all policy details, including terms, conditions, and potential downsides, fostering a more honest buying experience.
- Convenience: With a user-friendly interface, customers can browse, compare, and purchase policies without visiting multiple providers or facing sales pressure.
- Accountability: Insurers and intermediaries listed on Bima Sugam will be held to high standards of disclosure and customer service.
The Role of Bima Sugam in Transforming the Insurance Landscape
- Comprehensive Product Listings: Customers can view all insurance products in one place, eliminating the need to rely on potentially biased recommendations from bank employees or intermediaries.
- Ease of Access: Bima Sugam will integrate all stakeholders, including banks, insurance companies, and intermediaries, making the process seamless for customers.
- Customer-Centric Approach: By enabling informed decisions, the platform prevents mis-selling and force-selling, ensuring that customers receive products tailored to their requirements.
The Role of Banks in Insurance Distribution
Despite the criticisms, banks are an essential distribution channel for insurance companies, especially private insurers. Their extensive networks and trusted customer relationships make them a significant player in the insurance market. However, this advantage also comes with risks of misuse, as banks often have a captive audience in their account holders. IRDAI’s measures aim to balance this dynamic, allowing banks to leverage their networks ethically without compromising their primary responsibilities.
The Importance of Ethical Insurance Practices
The primary purpose of insurance is to provide financial protection during unforeseen events. When policies are sold inappropriately or under coercion, this objective is compromised. For example:
- Liquidity Issues: Customers who need liquid assets may end up buying policies that lock their funds for years.
- Mismatched Products: Insurance products purchased without understanding their terms can fail to meet the buyer’s actual needs.
By promoting ethical practices, IRDAI aims to restore the insurance sector’s credibility and ensure that customers receive the intended benefits of their policies.
Regulatory Changes to Strengthen the Industry
The IRDAI has streamlined insurance regulations, reducing over 100 guidelines to just 20. This move grants organizations greater flexibility but also increases their responsibility toward policyholders. Companies must now ensure that:
- Policies are sold transparently.
- Products meet the specific needs of customers.
- Mis-selling and force-selling are eradicated.
This regulatory simplification is expected to foster growth while maintaining accountability across the industry.
Banks as Key Players in Insurance Distribution
Banks hold a pivotal role in the insurance distribution network, given their extensive reach and longstanding customer relationships. However, with great power comes great responsibility. Mr. Panda underscored that while banks’ distribution channels are advantageous, they must be used judiciously.
Guidelines for Banks:
- Focus on Core Activities: Banks should not deviate from their primary functions of lending, deposits, and financial transactions.
- Ethical Selling: Insurance products should be offered as options, not as obligations.
- Building Trust: Banks must uphold the trust built over decades by prioritizing customer needs over sales incentives.
The Future of Insurance with Bima Sugam
Bima Sugam is poised to revolutionize how insurance is perceived and purchased in India. By integrating digital tools with customer-centric practices, the platform aims to:
- Reduce the instances of mis-selling and force-selling.
- Simplify the decision-making process for customers.
- Boost the overall efficiency and transparency of the insurance industry.
Globally, India’s insurance sector ranks as the 10th largest and is expected to climb to the 6th position in the next 7–8 years. Initiatives like Bima Sugam are crucial for this growth trajectory, ensuring that the sector evolves responsibly.
Conclusion
The directives issued by the IRDAI Chief and the introduction of Bima Sugam mark a significant shift toward responsible banking and insurance practices. For customers, these changes promise a more transparent and trustworthy experience, free from coercion and confusion. For the insurance industry, this is an opportunity to enhance credibility and drive sustainable growth.
As the sector transitions into a more ethical and customer-centric phase, Bima Sugam stands out as a cornerstone of this transformation. By empowering customers with knowledge and choice, the platform is set to redefine how insurance is bought and sold in India.
FAQs
What is the core business of banks according to IRDAI Chief Mr. Debasish Panda?
The core business of banks is banking activities, such as lending, deposits, fixed deposits (FDs), recurring deposits (RDs), locker services, and loans. Selling insurance is considered an incidental activity for banks and should not overshadow their primary responsibilities.
What is mis-selling and force-selling in the context of banks and insurance?
Mis-selling occurs when customers are persuaded to buy unsuitable insurance products, often without understanding their needs. Force-selling happens when banks pressure customers to purchase insurance, such as making it a condition for loan approvals or other services.
What is Bima Sugam and how will it change the insurance buying process?
Bima Sugam is a digital platform that will provide customers with access to a wide range of insurance policies in one place. It will allow consumers to make informed decisions by offering transparency, enabling them to compare options, understand benefits and drawbacks, and choose policies that suit their needs.
Why is the IRDAI emphasizing caution for banks while selling insurance?
The IRDAI emphasizes that banks have a large, long-standing customer base and access to sensitive financial data. It is crucial for banks to act responsibly, offer only suitable insurance products, and avoid exploiting customer trust.
Disclaimer: This article is for informational purposes only and is based on the news and statements provided by industry experts. Readers are advised to conduct their own research or consult a financial advisor before making any decisions regarding insurance policies or banking services. The author and publisher are not responsible for any financial or legal actions taken based on this information.