Oxford dictionary defines misselling as the act of selling somebody something, that is not suitable to their needs.
While misselling seems synonymous to life insurance, let us try and explore it from the lens of the general insurance industry.
Picturize the scenario – You walk into your Bank Branch to complete some formalities for your pending housing loan application. While waiting for the Branch Manager in the lobby, a suave executive lure you into buying a Super Top up Health policy for 25 L. You think to yourself – these are Covid times, better have a top-up policy than not have one. The premium seems cheap as opposed to what you are paying for your company Group Mediclaim policy (GMC). Wondering as to why you didn’t think of a top-up policy earlier, you feel proud to have bought a Health cover for cheap.
In about six months, you encounter an unfortunate accident, where the cost of hospitalization runs above Rs. 5 Lakhs which is your limit under the company GMC. You call the toll-free number listed on the Super Top up policy, only to be told that your claim would not be admissible. The piece of information the suave executive (who sold you the policy) missed out on, were the details of your base policy – your Sum Insured under the base policy, the start end date (which incidentally is easier if coupled to your base policy date) the pre-existing clause – which is de-coupled for the Super Top up policy i.e. if you are a diabetic and have zero waiting period (for hospitalizations where the primary cause is diabetes) in your GMC, you would still have to wait on an average for a four year period to make a claim (for hospitalizations arising out of diabetes) under the Super Top up policy. He even missed out on informing the Threshold for the Super Top up policy – a threshold in a Super Top up policy means the Sum Insured up to which you are willing to bear your own risk; ideally in your case, the threshold should have been Rs. 5 Lakhs.
Confused, well you are not alone.
Picturize another scenario – An agent calls you for renewal of your Motor policy. The premium quoted by this agent is significantly lower than the renewal quote from your servicing insurer. You are ecstatic on sealing a great deal and renew the policy with this agent.
Unfortunately, your car meets with a terrible accident, the very next month. When you take the car to your nearby garage, you are shocked to know that there is no cashless facility available at this garage. After some heated argument with the garage and your agent, you leave the car for repairs.
Finally, you get your car back in a week and send all the documents to the agent for settlement of the claim. You breathe a sigh of relief that all of this is finally behind you.
But that doesn’t seem to be the case – the Insurer calls you to check up on a couple of details with regards to your bank account and you are shocked to hear the settlement amount. The amount is about 40 % of the total damage. On enquiry, you realise you had not opted for any of the add-on covers, that could have accommodated the cost of depreciation of the car along with some other covers which could have added to the premium but would have eased your financial burden at the time of claim settlement. Realizing that was precisely the reason for the steep discount at renewal, you vow to be better informed in the future.
The experiences described above are not uncommon. Data with Insurance Regulatory and Development Authority of India (IRDAI) states – on an average the number of complaints (of misspelling) registered with them range around 40 to 50 thousand a year, and these are cases that get registered. A lot of people who are miss old insurance let it go as a one off.
In the next couple of paragraphs, let us try and understand the reasons behind misspelling and how one can steer clear of it.
Insurance guidelines stipulate that Insurance is a subject matter of solicitation i.e., the product must be requested for and cannot be sold. It remains unfortunate, that despite the origin of the trade dating back centuries, Insurance remains a push product – companies must keep marketing risks you could be susceptible to, in order to stay in the game. This duality and the technical nature of the trade sometimes leads associated parties to follow a withholding information approach rather than a full disclosure one.
The Insurance regulator and the law of the land have time and again come down heavily on the Insurers for not appropriating checks and balances to ensure the menace of misspelling is curbed. But despite the best intentions and timely audits, we are yet to reach a place which can be deemed satisfactory, let alone celebratory.
While the systemic shortfalls make it an easy target for misspelling, the industry has come a long way since IRDAI was established in 1999.
Understanding the system should help us game it when need be. We list below, some pointers on how the system has been designed
- The incentives of the Agent (the first point of contact for a customer) are aligned to the sale. The metric to measure after-sale feedback, one that should have been recorded immediately after or during the processing of a claim (when one arises), is often placed after the claim has been processed and relations (with the Customer) have soured. This also explains your “once a year” call with the agent. Their incentives lie in getting you to sign up and stay signed on; relationship management, well, not as much.
- Like in any other business, the morality of an agent is something that only time can test. While an agent is tested on technical skills before they are empanelled, a metric that would test them on soft skills and character is largely absent.
- While Insurance is a subject matter of solicitation, it largely remains a push product. The awareness levels remain abysmally low. While we do see some positives on this front in the past few years, we still have a long way to go.
- Insurance has been a sunrise industry for some time now. While the regulator has put in some entry barrier by seeking capital requirement off service providers, the selection and regulation of agents is largely left to the discretion of Insurers. Because of a low entry barrier to become an agent, any educated individual could set up an agency for an Insurer. And while this does serve as a good opportunity for someone who would want to make a career out of the Insurance industry, it does attract “fly by night” operators who close shop at the first sign of distress.
- The introduction of Bancassurance channel in the late 2000’s was a means to ensure penetration of insurance towards the banked individuals. Today, while Bancassurance remains one of the most profitable verticals for Insurers, it is also the one that promulgates the maximum amount of misselling. Every other day, one comes across Customers who get sold policies they don’t need, typically at Bank Branches.
While providing a comprehensive list of ways, means and types of policies that can be missold is impossible, we list pointers that could help you from falling prey
- Always remember, there’s no rush. You do not have to decide right away. A couple of hours to deliberate on the topic and do your primary research is always advisable.
- Consult genuine folks – often, one seating with an Insurer or a service provider should give you a fair idea of their depth of knowledge and whether you can trust them.
- Use Technology – Technology can help you with research on the Insurer, the agent, the Broker, a TPA, a hospital, a service provider. Technology can help you with literature on the risks involved. Technology can connect you with the right person at the right place, all the time. Nothing beats your primary research.
- Claim paid ratio, is the ratio of the number of claims paid to the number of claims received by an Insurer. This is THE one ratio you should factor in before you come to the decision, even if you ignore everything else.
- While Insurers do try and punish behavior that is inappropriate, bringing it to their notice is extremely important. A lot of times the Customer could let it go to maintain harmony, but the consequences of such actions could be damaging. Reach out to the Insurer or the Ombudsman if you think there is something fishy about a product or the service rendered.
We think the General Insurance Industry in India is at an inflection point. The next couple of years would transform the entire industry. And while the principle of Caveat Emptor has dominated the industry, we could soon see a paradigm shift towards – the Customer would always remain the King.
Stay informed, stay insured.