Mis-Selling a Money-Back Policy to an Elderly Vendor
Ramesh, an individual insurance agent, sells a 10-pay money-back policy to Kamala, a 58-year-old vegetable vendor in Berhampur. Her annual income is about ₹2.4 lakh. The policy has a 20-year term, annual premium ₹50,000, and a sum assured of ₹5 lakh. Ramesh tells her that she will 'get double the money in five years' and that 'premiums stop automatically after three years.' Kamala pays two annual premiums from her savings and a small loan. In the third year she cannot pay. The insurer sends a lapse notice. Kamala complains to the branch that she was misled. The branch manager finds that the proposal form was filled in English by Ramesh, that Kamala signed without understanding, and that the agent’s remarks are not in the benefit illustration. The free-look period has expired.
1. Identify the conduct breaches by the agent and any weaknesses in the insurer’s sales process.
Read the worked answer
The agent has misrepresented the product on two core terms: returns ('double in five years') and premium payment ('stops after three years'). A 10-pay policy requires premiums for 10 years, and a money-back plan’s returns depend on the benefit illustration, not a guaranteed doubling. He also sold a 20-year, ₹50,000-a-year policy to a 58-year-old vegetable vendor with income around ₹2.4 lakh; the premium is about 21% of income, and the 10-pay obligation continues past age 68. The proposal was completed in English, which Kamala may not understand, and there is no evidence that the benefit illustration or free-look was explained. These are breaches of the IRDAI agent code of conduct - misrepresentation, unsuitable advice, failure to explain, and unfair sales practice. The insurer’s weakness is its monitoring: it accepted a proposal completed by the agent, with no supervisor check, no suitability assessment and no vernacular disclosure. The free-look cannot cure a sale made on false statements.
2. What remedies are available to Kamala now that the policy has lapsed and the free-look period is over?
Read the worked answer
Remedies: (1) Insurer’s grievance cell - complain with the policy, premium receipts, loan evidence and a written statement of what the agent said; ask for cancellation for mis-selling and refund of premiums, or correction of the policy. (2) Revival - if she wants to continue, she can apply within the revival period (usually 5 years) by paying arrears with interest and possibly medical evidence, but affordability makes this doubtful. (3) Surrender/paid-up - after two annual premiums, a traditional policy normally has a guaranteed surrender value; she can ask for the surrender value if she exits. (4) Ombudsman/IGMS - if the insurer does not resolve in 14 days or rejects, approach the Insurance Ombudsman; mis-selling is within scope, and the Ombudsman can award up to the prescribed limit and direct refund/compensation. (5) IRDAI - report the agent for code breach. Free-look is not available because the period has expired, but misrepresentation is an independent ground; she should not simply stop paying without written advice.
3. How should the agency manager handle the complaint and prevent recurrence? Include ethical and regulatory steps.
Read the worked answer
The agency manager should: acknowledge the complaint in writing, register it in the grievance system, and investigate the proposal, benefit illustration, agent’s pitch and any call/visit records; stop the agent from further selling until the case is reviewed; arrange a meeting with Kamala in a language she understands and a witness. If mis-selling is established, the insurer should remediate - refund/adjust premiums, offer a suitable alternative or cancellation - and take disciplinary action against the agent as per the agency agreement and IRDAI rules. Prevention: suitability and affordability checks, vernacular benefit illustrations, a declaration that the customer understood the premium term, supervisor verification of high-premium/elderly cases, mystery shopping, persistency and complaint monitoring, and regular agent training on conduct. The manager must not pressure the customer to withdraw the complaint; records should be preserved for the Ombudsman. Ethics here means putting the customer’s ability to pay and understanding ahead of commission.