I don’t think there will be many people in urban India who do not have a bank mis-selling story to share. The systemic use of bank branches to mis-sell life insurance products and to churn mutual fund portfolios is now part of the urban Indian discourse. The problem is not new. I remember first raising the issue of banks mis-selling insurance and mutual fund products in 2007 with one deputy governor of the Reserve Bank of India (RBI). I was treated to lunch and anecdotes from those in the room of how people close to them were ripped off by banks. In fact, subsequently, in every committee I served on—Swarup Committee 2009 (bit.ly/2tLat6F) and Bose Committee 2015 (bit.ly/2rS3xmK)—the offline conversations included stories of bank branches turning into dens of tricks and traps. I’ve raised the issue of mis-selling with RBI, and with the ministry of finance, and so have others who work in this space, most notably Moneylife magazine (bit.ly/2t7r5HJ and bit.ly/2sHtN6b), which has raised it on multiple occasions. But the messaging that came down from the towers of oblivion on Mint Street was always the same: not our problem; let the sector regulators deal with this.
I wrote about the removal of key consumer rights by the insurance regulator in my previous column. You can read it here: bit.ly/2njjAI1. Insurance Regulatory and Development Authority (Irdai) responded with a letter. In the interest of fairness, I’m using key arguments of the letter here and putting the rest online at: bit.ly/2nAhs2H. I will also respond to Irdai’s letter.
What would you call a regulation that is titled Protection of Policyholders’ Interests, but is anti-consumer in its direction and intent? The draft regulation by the same name released by the insurance regulator on 1 February 2017 (you can read it here: bit.ly/2l9NpgI) has removed some basic consumer-first provisions that an earlier 2014 draft had suggested. As investors and consumers of financial products, we should worry about this.
As the entire financial sector moves towards lower fees, payments and charges, there is one outlier—the Indian insurance industry. The industry is not at fault; for that we must look towards what the regulator is doing. Almost a year after it floated a draft on rethinking commission rates, on 14 December 2016, the insurance regulator—Insurance Regulatory and Development Authority of India (Irdai)—hiked the total payout to the distribution arms. You can read the document here: http://bit.ly/2jjM69X.