Senior citizens with comfortable savings are being systematically targeted and defrauded by insurance companies. What is worse, this organised loot is done by relationship managers of the best banks and their insurance associates, with the top management turning a blind eye to the fraud. The mis-selling is almost like a template. The bank relationship manager convinces the senior citizen to buy a bunch of policies—often as a gift for children and grandchildren. These policies are portrayed as fixed deposits with insurance benefits but are, in fact, policies requiring payment of hefty annual premiums. Consequently, the annual premiums range from Rs 1 lakh to Rs5 lakh, which the seniors are unable to pay and the policies lapse.
When they realise that they have been duped, sometimes a year later, they begin to demand their money back. At this time, the insurance company officials collude with the bankers to ensure that complaints are rejected on the grounds that free look-in period is over and their signature on the form confirms assent. It is true that seniors have signed on the dotted line, but it was only because of an implicit trust in their bankers. Having trusted the bank with their life savings, they find it impossible to suspect that their sweet-talking relationship manager is deliberately and systematically cheating them. In most cases, the policy is explained to them in detail with plenty of calculations, but the manager is careful not to leave any paper behind. Often, even after they notice that the policy document is different from the promises made, the glib-talking relationship manager says he will sort things out with the insurance company which is an affiliate. Consider these three cases that Moneylife Foundation came across in just the past six weeks.
• Mr Raghunathan (name changed), 80, was a retired senior executive of Tata Exports. His ‘wealth manager’ sold him a dozen insurance policies. The beneficiaries were his sons Durgesh (two polices of Rs3 lakh and Rs6 lakh) and Kapil (five polices of Rs2 lakh, Rs3 lakh, Rs2.4 lakh and Rs5 lakh) and his granddaughter Supriya (five policies of Rs2 lakh, Rs4 lakh, Rs2.4 lakh, Rs10 lakh and Rs20 lakh). The total: a whopping Rs62.8 lakh. The wealth manager had become bolder when the last two were signed and the amounts were significantly larger. The total premium payable on these policies per year was impossibly high and not even feasible. In fact, his savings over a lifetime were decimated.
Interestingly, several policies were allowed to lapse, even after the premium had been paid for three years, and new ones opened, to log in fresh business to meet the next year’s target of the wealth manager. The bank is aware that the same wealth manager had cheated four others, including an 86-year old, whose signatures were forged, and Mr Raghunathan’s own brother, in whose name he created an email ID that was used for official communication. A doctor was sold a ‘single premium policy’ of Rs70 lakh, only to find that she needed to make five more payments of the same amount. The wealth manager’s actions are under investigation; but the bank is unlikely to refund the premiums unless there is pressure. Mr Raghunathan got his money back after Moneylife took up the case with the managing director of the bank. But what happens to the others?
• A 78-year-old retired chairman of the income-tax settlement commission was the victim of this fraud. The relationship manager of a leading private bank sold a ‘guaranteed return’ product, where a ‘deposit’ of Rs1 lakh, would fetch a maturity value of Rs1.42 lakh at the end of three years. One person in the family would get a Rs3 lakh life cover. Three company officials reiterated and confirmed the terms. He was persuaded to part with his cheque and told that the policy document would be sent shortly. The document he received was a 10-year policy in his daughter’s name with an annual premium of over Rs95,000. Shockingly, multiple people in the insurance company continued to fool him saying that the document was an interim paper and the ‘final policy document’ would have the correct terms. All this was in telephone conversations. When he, finally, filed a written complaint, he was given the brush off saying his consent was obtained and he had not rejected the policy during the free look-in period. He got a full refund after Moneylife wrote to the group chairman. But this is a clear case of fraud with the active connivance of company officials.
• The third case, of Abhay Kulkarni of Dadar (name changed), is the worst, with no solution. Mr Kulkarni’s NRI son wrote to us in anguish that his 70 plus father, retired from Air India, has squandered his entire retirement fund of Rs60 lakh on insurance policies sold as single-premium ones with high returns. The policies lapsed when he discovered that he needed to pay annual premiums for five years or more. A new set of agents is now persuading him to part with more money by offering to recover the money. The policies were all booked with blue-chip names in the financial world. We couldn’t help him because Mr Kulkarni, unlike his son, continues to believe the agents will help him recover the money. He is also driving himself into a bigger hole by borrowing from relatives to buy new policies.
In cases like these, consumers end up running from pillar to post with no end in sight. Banks and insurers are fully aware that their victims have no will or resources to drag them to court. This makes them very easy targets. But one consumer did go to court in a case relating to SBI Life Insurance. It led to a stinging judgement by the Allahabad High Court. The Court even asked the Serious Frauds Investigation Office (SFIO) of the ministry of corporate affairs and the insurance regulator to examine the unlawful gains made by the insurer by cheating consumers. How did the Insurance Regulatory and Development Authority of India (IRDAI) react to this? By setting up a committee “To recommend measures for curbing mis-selling and rationalising distribution incentives in financial products.” The report was submitted in August 2015, but nothing has happened on the ground.
The insurance sold to all the people mentioned above was clearly unsuitable and fraudulent; but since our financial regulators have little interest in enforcing their regulations, powerful insurers get away. Victims of mis-selling also receive no help from the banking ombudsman or the insurance ombudsman. In most cases, a complaint is dismissed primarily on one query alone—Did you sign the proposal form? If the answer is yes, the charge of mis-selling is rejected outright, though there is a clear pattern of identical complaints.
Check newspaper columns that publish answers to readers’ queries on insurance. If a victim seeks remedies to mis-selling, the standard answer is: You need to “conclusively prove that you were mis-sold insurance. Unfortunately, your position is considerably weakened because you signed a proposal form and documents that do not mention the high returns” or failed to complain in the free look-in period. Every insurer knows this is a deliberate trap. The relationship manager ensures that the customer does not even receive policy documents until the free look-in period has ended.
The Reserve Bank of India’s (RBI) consumer charter, if given teeth—in the form of hefty compensation and penalty for such deliberate mis-selling of third-party products—would stop such abusive practices. Instead, RBI is watching silently as gross abuse of senior citizens’ savings continues unabated. IRDAI has taken a cue from RBI and seems set to decimate consumer protection. A draft of IRDAI (Protection of Policyholders’ Interests) Regulations, 2017, which is open for public comment, has reportedly removed provisions that protected consumers from unfair market conduct, mis-representation of policy benefits, unfair terms of contract, conflict of interest of advisors, right to fair disclosure and suitable advice.
Isn’t it time that IRDAI (and the insurance ombudsman) wakes up to this standard template of mis-selling and orders refunds in all such cases? If multiple financial regulators fail the ordinary consumer, it is time we demand a unified financial regulator and the single-point grievance redress that cuts across regulatory turfs of IRDAI, RBI and others.