LIC: Financial planners have for years cautioned retail investors against buying life insurance-cum-investment policies due to high commissions, charges and exit constraints.
Government-owned Life Insurance Corporation (LIC)’s core products—traditional endowment plans—have been frequently criticized for its ambiguous charge structure and high surrender cost. Over the years, there have been cases where the distributors of life insurance companies have been selling such products to simple policyholders without any thought, in a wrong way.
Most mis-selling complaints against LIC, SBI Life
The data related to complaints of policyholders given in the draft paper of LIC shows that the lowest number of mis-selling complaints in the industry have been received against the insurance company. 2.4 complaints of miss selling per 10,000 policies were received against LIC in April-September, 2021, while 7.6 complaints were received against SBI Life.
The condition of other life insurance companies is much worse. For every 10,000 policies, 34.4 complaints were received against ICICI Prudential Life Insurance, 28.4 against Bajaj Allianz Life, 23.8 against Max Life and 18.3 against HDFC Life.
For the financial year 2020-21, LIC had recorded a better figure with 2.1 complaints per 10,000 policies. Complaints received under unfair business practices are considered mis-selling.
Miss-selling challenge continues
Industry experts, however, disagree with the low share of complaints of mis-selling. A financial advisor in the past who was associated with some life insurance companies said, “How many people read policy documents? Many are not even aware of the wrongly sold policies. Many find out late. It is easy to sell a savings plan in India due to the lack of financial literacy. In future, it will not be easy to sell policies with higher commission and surrender charges to more financially savvy people, youth.”
This problem has been there in the life insurance sector for a long time. The complex structure of the product also poses problems. Consumer activist Jehangir Guy says, “There is no dearth of complaints of mis-selling in our opinion. We have come across cases where policies relating to young customers were sold to older people.”
Policyholders often buy savings and investment policies in a hurry during the annual tax season to claim tax.
Despite the strictness of IRDA, the challenge remains
The challenge remains despite IRDAI framing rules for insurance companies, limiting commissions, to prevent mis-selling. Due to this, the cases of policy lapse are more. According to IRDA data for 2020-21, in case of LIC, one-third of policyholders give up their policy after one year, while 52 per cent leave the policy after five years i.e. 61 months. The position of the private sector is also bad in this regard, with 69 per cent and 41 per cent cases of lapse in the 13th month and 61st month respectively.
More complaints than peers
However, the performance of LIC has not been such in terms of total complaints, which includes policy processing, servicing, claim processing, etc. In these cases, 48.7 complaints were received against LIC per 10,000 policies till September 30, 2021, followed by ICICI Prudential Life with 50 complaints.
Generally, the claim settlement ratio of a public sector company is the highest in the industry, but it declined to 94.2 per cent in April-September 2021, ahead of HDFC Life (98 per cent) and Allianz Life (95.1 per cent) instead. In the financial year 2020-21, it settled 98.3 percent of death claims, while rejected 0.9 percent of claims.
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