The insurance industry has been marred by the “mis-selling” of products—a not-so-happy situation for both potential buyers and industry players. The Insurance Regulatory and Development Authority of India (IRDAI) member, Satyajit Tripathy, highlighted this growing concern on Tuesday during the Confederation of Indian Industry (CII) Financial Summit 3.0 in Mumbai.

“Grouse (in life insurance) is about mis-selling a product, and I must say that it is at an alarming level. It is at an alarming level because it has caught the attention of the policymakers,” the Business Standard quoted Tripathy as saying. “If we are talking about increasing the penetration, selling products, and making it affordable, then we must address these grievances,” he said.

Read More: From Top-Ups To Porting, Here Are Some Tips To Reduce Health Insurance Premiums

What Is Mis-selling of Insurance?

Mis-selling in life insurance often occurs when agents or brokers persuade customers to buy policies that do not align with their financial needs or goals. This could involve selling a product with hidden charges, promoting policies as investment tools without disclosing the risks, or pushing high-commission products that offer little benefit to the policyholder. Such practices erode trust in the insurance industry, leaving many customers feeling misled and financially burdened.

Where Is The Most Mis-Selling Happening?

Tripathy further explained that grievances within the insurance industry differ significantly between life and non-life sectors. While life insurance complaints predominantly revolve around product-related issues, non-life insurance grievances are more focused on claim payments and exclusions. For instance, customers in the non-life sector, particularly in health insurance, frequently report issues with claims being denied or receiving significantly lower payouts than expected.

According to IRDAI’s annual report for FY23, the Bima Bharosa portal recorded 1,24,293 grievances with life insurers, with 20 per cent of these complaints classified under Unfair Business Practices, a category that often includes mis-selling. In the non-life insurance sector, 78,347 grievances were registered, with 66 per cent related to claim issues, further highlighting the challenges policyholders face in this sector.

Way Forward

To improve the situation, Tripathy discussed the role of technology in streamlining the claims process. He pointed out that artificial intelligence (AI) is increasingly being used to make claims processing in retail motor insurance more efficient and paperless, thereby reducing the trust deficit between insurers and customers.

Read More: How To Effectively Plan For Healthcare Costs After Retirement?

Additionally, efforts by the Ministry of Health, Irdai, and other stakeholders to develop cashless facilities for health insurance are expected to bring more people under the health insurance umbrella, making the process smoother and more reliable.

Addressing these grievances, particularly the issue of mis-selling in life insurance, is crucial for building consumer confidence and ensuring the industry’s long-term growth.