Banks will Now be Penalised for Mis-Selling Insurance

The Insurance Regulatory Development Authority of India (IRDAI) has cracked down on mis-selling of insurance by banks. Banks will now be held responsible for any mis-selling and even slapped with penalties. Mis-selling by banks is a big problem. An online survey conducted by economictimes in November 2015 showed that three out of five customers were mis-sold investment products by banks. More than 36% of the 1,313 respondents listed this as one of the major pain points in their dealing with their bank.

Newbie investors and those with deeper pockets were most at risk. It's not uncommon for bank staff to peek into the customer accounts and zero in on those with little knowledge or fat balances. The survey showed that respondents below 30 and those earning more than Rs 1.5 lakh a month are most frequently targeted.

In another study, posing as customers, ET Wealth staffers had approached several banks for financial advice. Most of the banks advised them to buy traditional endowment or moneyback policies, even though these plans offer very low returns and inadequate insurance cover. Irked by the rising number of complaints against mis-selling, the insurance regulator has now made banks liable for the insurance policies they sell.