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The purpose of this study is to investigate the reasons of mis-selling of insurance products by banks. The following information was gathered from Indian bank and HDFC Bank with the help of a friend. By taking non probability convenience sampling, 200 samples of bank customers of Delhi region have been considered. Simple percentage and chi-square test results have revealed that mis-selling was done by banks. Both Primary Data and Secondary Data have been collected for the purpose of research. The Primary Data has been collected by the way of survey through questionnaire. The Secondary Data has been collected through Journals and Online database. The study recommends special attention of bankers and their approach towards selling an insurance product to their customers.
As for insurance, the last step of the products moving towards consumers- distribution is an essential part. Distribution System - relationship between distribution channels and market segments, and also products, is very important.
The insurance marketplace is undergoing a transformation that may eventually lead to significant changes in how consumers purchase insurance products. A variety of distribution channels are currently used in this market place and some insurers utilize a combination of distribution channels. Direct marketing, the agents, banks, brokers, networkâ€¦â€¦It seems that we have so many selections, but which is the best solution for an insurance company? By establishing the successful distribution channel, insurance companies could largely cover the market and gain the loyalty of customers, and cut down the cost, so as to achieve the competitive advantage among the competitors. Insurance companies should continually innovate and integrate the distribution channel, make them be a part of the occupying market and highly promoting the development of their own.
While it is true that insurance purchasers today have more options available than they did five years ago, it is unclear if and when these channels will dominate existing insurance distribution channels. Several obvious factors that impact on a channel's adoption are consumer attitudes and preferences. In particular, it may be that consumers consider insurance products to be more complex than originally thought. Consumers still do not view even personal lines insurance products to be commodity products.
The effectiveness and cost of diverse distribution strategies of different players is crucial in ensuring the success of players in the insurance business, particularly in the retail line of business. The low differentiation among retail insurance products suggests the criticality of distribution reach and efficiency for success in this business.
The factors that determine the choice of the distribution channel of an insurance company are:
Who are the customers?
What is target customer profile?
Which product can be sold through distribution channel?
Which channel provides best buying experience and value to target customer segment?
What is the operational cost involved in each type of channel?
The customer preferences vary by market segment vis-à-vis geography, age, income, life style, etc., and market characteristics change over time.
The life insurance sector saw a paradigm shift after September 2010 with new regulations, while the general insurance sector witnessed its bleeding third party motor pool scrapped recently. Over the last 18 months, the growth of the sector was stalled with the insurers grappling with new distribution strategies and new products to cope with changing regulations
1.2 ROLE TRANSFORMATION OF INTERMEDIARIES:
Insurance has to be sold all over the world, and the Indian Market is no exception. The touch point with the ultimate customer is the distributor or the producer (as they are known in certain markets), and the role played by them in insurance markets is critical. It is the distributor who makes the difference in terms of the quality of advice for choice of product, servicing of policy post sale and settlement of claims. In the Indian markets, with their distinct cultural and social ethos, these conditions will play a major role in shaping the distribution channels and their effectiveness.
In today's scenario, insurance companies must move from selling insurance to marketing an essential financial product. The distributors have to become trusted financial advisors for the clients and trusted business associates for the insurance companies.
This calls for leveraging multiple distribution channels in a cost effective and customer friendly manner. For example, in the developed markets producers (brokers and agents) form the major channels of distribution, while the web as a complementary channel is catching up slowly. According to a Forrester survey, 88% of the Life insurance executives responding identified agents as the primary channel of distribution.
The distinction of channels in the developed markets is: personal distribution systems and direct response systems. Personal distribution systems include all channels like agencies of different models and brokerages, Bancassurance, and work site marketing. Direct response distribution systems are the method whereby the client purchases the insurance directly. This segment, which utilizes various media such as the Internet, telemarketing, direct mail, call centers, etc., is just beginning to grow. The figure below provides an estimate of the current market share of the various distribution channels used by insurance companies and gives a view of how these channels could develop in future.
(Source: Watson Wyatt)
In today's scenario, insurance companies must move from selling insurance to marketing an essential financial product. The distributors have to become trusted financial advisors for the clients and trusted business associates for the insurance companies. Hence, distribution channels for insurance can be listed as follows:
Bancassurance means selling insurance products under the same roof of a bank. Though Banc assurance emerged its roots in France in the 1980s, and spread across different parts of Continental Europe since, it has spread its wings in Asia - in particular, in India.
Bancassurance is the distribution of insurance products through a bank distribution channel. In concrete term, bancassurance which is also known as 'Allfinanz'- distributes a package of financial services that can fulfill both banking and insurance needs at the same time. The motive behind bancassurance varies: For banks- product diversification, source of additional fee income. For Insurance company- A tool of increasing their market penetration, premium turnover, For Customers- convenient everything under one roof.
Bancassurance is the collaboration between a bank and an insurance company wherein the bank promises to sell insurance products to its customers in exchange of fees. It is a mutual relationship between the banks and insurers. It is a new buzz word in India but it is taking roots slowly and gradually. It has been accepted by banks, insurance companies as well as the customers.
1.4 BANCASSURANCE MODELS
There are 3 kinds of bancassurance business models:
Strategic Alliance: Under a strategic alliance, there is a tie-up between a bank and an insurance company. The bank only markets the products of the insurance company. Except for marketing the products, no other insurance functions are carried out by the bank.
Full Integration: This arrangement entails a full integration of banking and insurance services. The bank sells the insurance products under its brand acting as a provider of financial solutions matching customer needs. Bank controls sales and insurer service levels including approach to claims. Under such an arrangement the Bank has an additional core activity almost similar to that of an insurance company.
Mixed Models: Under this approach, the marketing is done by the insurer's staff and the bank is responsible for generating leads only. In other words, the database of the bank is sold to the insurance company. The approach requires very little technical investment. Most of the bancassurance operations in India fall into the first model, which in a way is quite a prudent decision. The Indian bancassurance scene as of now looks as promising as perilous, being a vast, unexplored and uncharted expanse. As banks are quite risk averse, it is but natural for them to withhold from making any long term commitment, which would be quite costly if the bancassurance business runs into trouble.
In terms of the present regulatory framework, one bank can tie-up with only one life and one non-life insurer, while insurers have the choice to tie-up with any number of banks.
1.5 MIS- SELLING
Mis-selling can be defined as the deliberate, reckless or negligent sale of products or services where the contract is either misrepresented, or the product / services are unsuitable for the customers' needs. Example: selling of life insurance to someone with no dependents is
regarded as mis selling.
Insurance industry is affected because of mis selling of insurance products, and customers are duped without having full knowledge on insurance product they buy and they blame the Company due to this. Insurance products are to be sold on the basis of clients needs and not on self interest. Two thirds (65pc*) of bank staff with sales targets said they are being placed under more pressure than ever to hit them and almost half (46pc) know colleagues who have mis-sold products just to meet their goals, the consumer group found. (Pc*percent.)
Unfortunately throughout the world there is a temptation for bankers and brokers to sell what is best for them, rather than what suits the investors. This leads to mis selling of financial products specially insurance policies
REVIEW OF LITERATURE
2. LITERATURE REVIEW
2.1. Source: http://www.policymantra.com/blog/concern-of-irda-for-bancassurance-model/ :http://tips.thinkrupee.com/articles/bancassurance-in-india.php December 2011
Bancassurance is seen as a distribution channel which improve the penetration of the insurance but recently few cases of mis-selling by banks has come in notice of Insurance Regulatory and Development Authority (IRDA) ; IRDA is concerned over such practices hence it has decided to examine the banc assurance model.
IRDA had set up a panel to look into the banc assurance model. Some cases have come in notice of IRDA where some banks has forced their customer to buy insurance policies in order to advance their loans such customers who unwillingly have to buy the policy in order to get the loan and do not continue it; hence policies get lapsed after first premium is paid which lead to the forfeiture of the money by the insurer this practice is not right for the insurance industry as selling of policies must be need based not forceful.
RBI, in its recent Financial Stability Report has said that current regulations do not allow banks to become insurance brokers. And if banks assume the role of insurance broker then it would lead to the conflict of interests where the bank is also the promoter of an insurance company.
The main risk is that when a bank is allowed to sell multiple products, the tendency is to sell products that offer a higher commission than those which the customer needs. If this risk is not mitigated, it will lead to reputational risks for a bank. Insurers also feel that reputational risk will occur only if mis-selling is done by banks. Hence, banks could choose simpler products to sell and avoid wrong selling. Some banks have issues with their insurance company tying up with other banks.
2.2. A Satisfied Policyholder: Ambassador of further business Journal of IRDA Volume X,
No. 2, February 2012, pages 17-20
Dr. G. Gopalakrishna says "in developed countries where insurance penetration is high; the servicing to the policy holders begins with the closing of the sale and completion of the insurance contract. But unfortunately in our country, with a few exceptions, the servicing ends with the issue of the policy". In a large majority of cases the customer is left to get his grievances resolved only through direct correspondence with the insurance company's offices. Many times, the right type of policy is not sold and the poor policy holder finds to his dismay that he has just bought a type of policy which does not suit his requirements. He gets disgusted and stops paying further premiums.
The benefits of insurance and the benefits of the policy are not properly explained to the policyholder. In such cases, there is every possibility of a policy lapse. The sales personnel are the primary representatives of the life insurance industry to come in contact with the policyholders. They are the intermediaries between the policyholders and the insurance company. The policyholders depend on them for everything (from the beginning of the contract till the disposal of the claim either by maturity or death).
2.3. Customer Dissonance in Service: Complaints in Banc assurance Journal of IRDA
Volume X, No. 2, February 2012, pages 21-22 diseffiiciency in service that eventually leads to customer complaints
The customer complaints handling procedure is designed to make sure your complaint is dealt with efficiently, fairly and effectively. The insurance company must ensure that the procedures are:
2.4. Source; Posted on January 4, 2013 by Akanksha;
Benefits of Banc assurance:-
It encourages customers of banks to purchase insurance policies and further helps in building better relationship with the bank.
Increase in number of providers means increase in competition and hence people can expect better premium rates and better services from banc assurance as compared to traditional insurance companies.
The people who are unaware of and/or are not in reach of insurance policies can be benefitted through widely distributed banking networks and better marketing channels of banks.
Demerits of Banc assurance:-
Data management of an individual customer's identity and contact details may result in the insurance company utilizing the details to market their products, thus compromising on data security.
Better approach and services provided by banks to customer is a hope rather than a fact. This is because many banks in India are known for their bad customer service and this fact turns worse when they are responsible to sell insurance products. Work nature to market insurance products require submissive attitude, which is a point that has to be worked on by many banks in India.
There is a possibility of conflict of interest between the other products of bank and insurance policies (like money back policy). This could confuse the customer regarding where he has to invest.
2.5. Keep insurance products simple to minimize mis-selling: Chidambaram (finance minister) Source: times of India newspaper Feb 4, reporter kamal nath
Finance Minister P. Chidambaram flanked by K. R. Kamath ,CMD, Punjab National Bank, and Christopher Townsend, President- Asia, MetLife Inc, at the launch of PNB MetLife India in the Capital "The insurance industry can make rapid strides in India if insurers sell only simple products and avoid mis-selling"
The reason why insurance has stumbled despite opening of the sector in 2001 was because of mis-selling,
If you want to sell insurance in India, you must sell simple products and make it absolutely clear to your agents that they should not mis-sell the products"
SCOPE, OBJECTIVES AND LIMITATIONS OF
3.1 OBJECTIVE OF THE STUDY
To study the mis selling of insurance products through banks.
To study the factors which leads to mis selling of insurance products through banks?
To study the methods by which insurance companies can reduce mis selling of products.
3.2 SCOPE OF THE STUDY
This study will be conducted from 15th December 2012 to 25th January 2013 .My study will be confined to private sector banks HDFC BANK (vasundhra enclave , Delhi) and INDIAN BANK (mayur vihar, Delhi ) selling insurance products where 200 bank customers were asked questions regarding purchase of insurance products from banks or other channels and their satisfaction level.
3.3 LIMITATIONS OF THE STUDY
Less number of sample
In most of the cases it was difficult to get the responses from respondents
4. RESEARCH METHODOLOGY
4.1 RESEARCH METHODOLOGY
Research Design: Design researchÂ investigates the process ofÂ designingÂ in all its many fields. It is thus related toÂ Design methodsÂ in general or for particular disciplines. A primary interpretation of design research is that it is concerned with undertaking researchÂ intoÂ the design process. For this purpose descriptive research studies will be used.
Sample Design: A process usedÂ in statistical analysis in whichÂ a predetermined number of observations will be taken from a larger population.
Target Population: Refers to the selected banks:
INDIAN BANK MAYUR VIHAR, DELHI
HDFC BANK VASUNDHRA ENCLAVE, DELHI
Sample Unit: A sampling unit is one of the units into which an aggregate is divided for the purpose of sampling, each unit being regarded as individual and indivisible when the selection is made. Here the sample unit =200 CUSTOMERS
Sample Frame: AÂ sample frameÂ is a list that includes every member of the population from which aÂ sampleÂ is to be taken. Here sample frame = Branches of banks (specified above) in Delhi and their 200 customers.
Sample size: The sample size of a statistical sample is the number of observations that constitute it. It is typically denoted n, a positive integer (natural number). Here sample size= 2 banks and 200 bank customers.
Sampling Method: Sampling is the process of choosing the suitable sample.
Here Convenience Sampling is used.
Data Collection: It is done through method of Survey
Data Collection Tools: Data will be collected through questionnaire.
Tools Of Data Analysis: MS EXCEL
5. DATA ANALYSIS AND INTERPRETATION
5.1 DEMOGRAPHIC PROFILE
It is very important to categorize the respondent's demographic profile because it gives a broad picture. The number of respondents was 200.
Table 1: Demographic Profile
Less than 2,00,000
More than 10,00,000
Q1: Type of bank in you in which you having account:
A) Public sector bank
B) Private sector banks
Out of 200 customers, 31% respondents responded that they are remitting services of both types of banks.
Q2: Type of bank account you have:
A) Savings account
B) Current account
Out of 200 customers, 40% respondents have savings account and 28% have both the accounts.
Q3: You are having life Insurance Policy?
Out of 200 customers, 77 % respondents do have life insurance policy whereas only 23% respondents do not have life insurance policy.
Note: If answer to the above question is no move to Q No: 4 otherwise proceed.
Q4: If yes, select the option of medium
Out of 200 customers, 55% respondents bought their policies from banks itself as they feel convenient.
Note: if answer to above question is option 1 please answer the following question
Q5: The insurance product sold to you by bank was according to your need:
Out of those 110 customers, 70 respondents are not happy with their policy.
H0: Mis selling of insurance products is independent of channel of distribution
H1: Mis selling of insurance products is dependent of channel of distribution
Chi square test:
The calculated value of chi square is 43.75 which are greater than the tabulated value of chi square at 95% confidence level and 2 degrees of freedom (5.99). Therefore, null hypothesis is rejected. Hence misselling of insurance products is dependent on channel of distribution.
Q6: Type of life Insurance policy:
Out of 200 customers, 52% responded that they have life policies.
Q7: Have you left your policy in between:
165 customers have left their policies in between whereas only 17 % haven't left it in between.
Q8: The product which was sold to you by bank wasn't according to your need:
A) Strongly agree
C) Strongly disagree
Out of 200 customers, 85 respondents weren't happy with their policies and they felt forceful or pressurized.
Q9: There is lack of updates on product knowledge, product training and product awareness amongst the bank staff:
A) Strongly agree
C) Strongly disagree
Out of 200 customers, 48 % customers feel that bankers don't possess that much knowledge of insurance products as they should have and just sell policies to meet their targets.
Q10: The rates of premium for Bancassurance are competitive:
A) Strongly agree
C) Strongly disagree
88 % respondents strongly agree with the statement that the premiums that are offered through bancassurance are quite competitive.
Q11: Bancassurance leads to miselling of Insurance Products:
A) Strongly agree
C) Strongly disagree
The above pie chart shows that customers do feel that the bancassurance leads to mis-selling. The products sold to them were mis-sold.
Q12: There is lack of interest amongst bank staff in resolving your query about the product after selling it :
A) Strongly agree
C) Strongly disagree
The above pie chart shows that after sales services are not adequate and after sales- no special attention is given to them.
Q13: The product sold to you was just to earn incentives by the bank staff:
A) Strongly agree
C) Strongly disagree
The above pie chart shows that customers do feel cheated and think that the product sold to them was according to their need and requirement infact they were sold to make some extra incentives by banks staff.
Q14: Currently you are not satisfied with your product:
A) Strongly agree
C) Strongly disagree
This shows that customers feel they the product which was sold to them doesn't satisfy their need and requirement.
Out of 200 customers, 31% respondents responded that they are remitting services of both types of banks. 40% respondents have savings account and 28% have both the accounts. 77 % respondents do have life insurance policy whereas only 23% respondents do not have life insurance policy. 55% respondents bought their policies from banks itself as they feel convenient. 70 respondents are not happy with their policy. 52% responded that they have life policies.165 customers have left their policies in between whereas only 17 % haven't left it in between. 85 respondents weren't happy with their policies and they felt forceful or pressurized. 48 % customers feel that bankers don't possess that much knowledge of insurance products as they should have and just sell policies to meet their targets.88 % respondents strongly agree with the statement that the premiums that are offered through bancassurance are quite competitive. Customers do feel that the bancassurance leads to mis-selling.The products sold to them were mis-sold. After sales services are not adequate and after sales no special attention is given to them. The customers do feel cheated and think that the product sold to them was not according to their need and requirement in fact they were mis sold to them to make some extra incentives by banks staff. This shows that customers feel they the product which was sold to them doesn't satisfy the need and requirement.
Selling the right policy, i.e., the policy that correctly answers the individual's needs and circumstances..
Selling the policy right i.e., explaining the benefits in such a way that the policyholder would consider it necessary to maintain the policy
Inculcating the habit of saving i.e., ensuring that the policyholder saves regularly from his income so that he has the amount necessary to pay the premium readily available in cash when the premium falls due.
After-Sales Service: good after-sales service and regular contact with the policyholder.
Setting up a customer committee -to make sure complaint is dealt efficiently, fairly and effectively.
Banks should choose simpler products to sell and avoid wrong selling, and when they are comfortable, can choose to sell complex product
Fix a complaint quickly-It can provide a customer with a sense of security in your business, making them much less likely to go to your competitors.
Listen to what the customer has to say. Even if you can't solve the problem, you still need to listen.
The policyholder should be made to feel that his/her policy is a valuable and reliable asset -. A confidence should be created that the claims would be settled promptly. This is possible only when policyholders receive prompt attention to their requests.
Bankers should not forcefully sell an insurance product and see the requirement of that customer because it has often seen that after payment of first premium policy holder fails to pay more premiums
Last but not the least bankers should not think about their interests and their commission rather than see the need and requirement of a policy to that customer.
It has been found bancassurance as emerged in India to a great extent and many banks have their tie up with insurance industries or we can say many insurance companies have tied with different banks to sell them their products. It got a advantage to insurance companies as they can tap lager segment in the market and can have profits whereas as banks have the advantage of making extra income by selling these products and customers to feel convenient and thus easily buy policies from banks .But according the survey it has been found that ,customers who have bought their policies from banks have quit their policies in between as they feel forced sometimes and feel that the policies sold to them was not according to their needs and feel after sales services by bankers is not adequate as well as think that bank staff don't have the proper knowledge of it. Bankers sell their products just to meet their targets and earn incentives. Thus bancassurance leads to mis- selling of insurance products.