Avoid bancassurance traps: What customers must know

Mis-selling of insurance via banks is widespread despite finance minister and RBI warnings

- Anagh Pal

Insurance mis-selling at banks is an open secret. Even Union finance minister Nirmala Sitharaman and Reserve Bank of India (RBI) governor Sanjay Malhotra have acknowledged it at public forums, yet little has changed over the years, and customers who were mis-sold policies continue to bear the brunt.

In fact, bancassurance sales incentives can strongly influence product recommendations, with staff often prioritizing high-commission policies over genuine customer needs.

Sample this: Jeet Singh Bisht, a 74-year-old Delhi-based retired businessman and customer of a small finance bank, experienced this firsthand. He was persuaded by the lender's team to buy two investment-cum-insurance policies, under a simple promise: pay a premium once and receive a lump sum after 10 years.

However, just a year later, the terms unexpectedly changed. He was informed that annual payments would be required for at least five years—directly contradicting the original assurance. Bisht's repeated appeals to the bank and the insurance company brought no resolution, with officials denying any mis-selling despite the clear discrepancy.

What to do in such a situation?

You will need to keep at it. Fight for your cause. Frustrated Singh searched online for help and found Insurance Samadhan, a platform for the resolution of insurance claims. The organization reviewed his documents, took the matter to consumer court and negotiated a settlement. "The bank's team had misled me into buying an insurance policy with false commitments. I recovered much of the money, but that was after a lot of hassles," Singh said.

Therefore, prevention is better than cure, and to avoid the mis-selling trap, you need to identify red flags.

Red flags