The life insurance industry continues to face the menace of mis-selling. Even the finance minister publicly admonished insurers on the practice. The industry recorded a degrowth of insurance premium in 2011-12, while insurance penetration slipped to 3.40 from 4.60 in 2009. It is evident that no serious attempt has been made to find a way out.
The agent is the main source of business insurance. However, there is no stability in the agency channel. Continuing the trend of attrition of agents, in 2011-12, the number of agents appointed was 7.14 lakh, while termination figures stood at 9.95 lakh.
Training of agents has not brought any qualitative improvement in the agency, notwithstanding the huge investment by the industry. If we look at the cost-benefit analysis, the survival rate of agents after three years declines sharply. An agent in the first year spends R1,250, which amounts to R124.50 crore for 9.95 lakh agency terminations in one year. There are other imputed expenses. Assuming the sum of R5,000 on training and maintenance per agent for the same number, the figure works out to R497.50 crore. This is an eye-opener as to the effectiveness of the channel.
As per reports, companies thrive on lapses. For example, HDFC Life reported profits of 88.3% due to lapsed policies. This figure for Kotak Life is 80%. The higher the average premium, the greater the lapses. The link is proved by the fact that the average premium of HDFC Life is 54,473, while for Kotak Life, it is 73,762.
The so-called ‘agent’ seems to have become a source of exploitation for his contacts. I have known cases where the policyholder has been misled into investing huge amounts without proper guidance and the companies are unable to provide any relief.
Mis-selling has assumed such alarming proportions that HDFC Life served a notice on LIC for its agents leveling allegations of mis-selling against it, while the LIC has come out with advertisements cautioning policyholders from unscrupulous entities offering misleading rewards.
The bancassurance channel has been added to the already crowded list of sources of mis-selling. The free-look period expires due to manipulation in delivery of policy with the result that the clients feel cheated. There is an imperative need for the life insurance industry to instil confidence in the minds of the public to fulfil the role of economic prosperity that it enshrines. It needs to be pro-active in identifying and tackling the problems