Inspite of several IRDA warnings, mis-selling of life insurance policies by the pvt companies continues to be rampant. Since the past few years, the regulator has taken no of initiatives to combat this ever growing menace in the life insurance industry, but with limited success.

Private life insurance companies trying to gain higher share of the pie

Indian insurance industry witnessed a remarkable turnaround with the private companies making inroads in the Lic dominated Indian market in 2000. Private players in collaboration with foreign companies brought about a sea change with their aggressive marketing tactics, technological upgrades, innovative products and extensive knowledge. This was in complete contrast to LIC’s traditional way of handling operations.  Since the time the private players have entered the Indian market, they have completely changed the rules of the game.

Life insurance industry consists of 23 players including state run Life insurance Corporation of India. Presently, LIC has a market share of over 65%. In the past few years, market share of the private player’s vis-à-vis the LIC has been on rise. However, soon enough the regulator received several complaints from the investors regarding   mis selling by the private players. Pvt Companies in their attempt to outdo each other are resorting to various malpractices and thus victimizing the innocent investors in the process.

Mis-selling through agents-the major factor

Mis selling through agents have been on rise. Reasons for this could be attributed to incentives, targets, etc. Major mis-selling happens in case of investment cum insurance products such as ULIP’s owing to their higher commission structure. Sometimes the commissions paid for these products are as high as 60%. This could be gauged from the fact that the bulk of life policies in India till date are ULIP’s and other investment products such as money-back and endowment.

Steps taken by IRDA..

IRDA, uptil now has taken various measures to curb the malpractices, but in vain. Recently, IRDA had introduced a regulation that will help to curtail the mis-selling. As per the regulation, premium payment from the second year should not be less than 75 % of the first year. Initially, when this regulation was not in frame, agents used to sell the policies with huge first year premiums and thereby pocketing huge commissions.

Many experts feel that training the agents is important in order to put a stop to mis-selling, however as long as agents continue to receive large no of monetary incentives, curbing these mal practices shall be difficult. In addition to he above change, IRDA has also altered the guidelines and made the mortality charge free from caps and has also introduced flat fund management charge of 1.35%. However, all these steps taken by IRDA might benefit the insurance industry to some extent, but will do nothing to prevent the mis-selling from its core.

Caveat emptor-Buyer beware

It is always better to be safe than sorry. Investors have to be extremely cautious while buying the insurance policy and not get swayed by the insurance company or agents selling tactics.