Finance ministry asks PSU banks not to force-sell life insurance products

A bank teller asking a customer looking for a personal loan to buy a life insurance product, whether he needs it or not, from it is a common practice.

However, the government has taken note of such practices of force-selling insurance products by banks.

In a is looking into such practices and has advised banks to deter senior officials from such practices.

“It has been advised that a bank should not adopt restrictive practices of forcing customers to get insurance from a particular company. It was also conveyed that CVC has raised objections, as incentives for selling insurance products, brings not only pressure on the field staff but the core business of banking gets affected. And secondly, advances may get compromised in the lure of commission and incentives for staff,” the finance ministry said in a communication to public sector banks.

It said the department has received a complaint that fraudulent and unethical practices are adopted by banks and life insurance companies (channel partners).

Also, banks have been asked to do full compliance of KYC customer guidelines while sourcing of life insurance business.

IRDAI stance

Earlier this year, Insurance Regulatory and Development Authority (IRDAI) had said that banks will be made accountable for any insurance product mis-sold through them.
Currently, insurance companies are responsible for any mis-selling of insurance products through the banking channel, which is one of the most sort after in the sector. It had said that corporate agents will be an intermediary and work on behalf of customers. The regulator will soon issue specific corporate agency norms which will make them liable for the products sold.

The regulator is working on mapping insurance policies of banks and other corporate agents.

Bancassurance is a low-cost distribution channel and all insurance companies want to partner with banks as it gives them access to a large customer database. In insurance, the share of banks in total individual new business went down to 15.62 per cent in 2013-14 from 16.18 per cent in 2012-13, according to Irda’s latest annual report.