The Bank RM's Diwali Voucher
Meera, a 62-year-old retired schoolteacher, walked into a suburban branch of a scheduled commercial bank registered with IRDAI as a corporate agent and bought a "guaranteed wealth builder" non-participating savings plan from its relationship manager. She paid a single premium of ₹12 lakh from her own account on 18 January 2025. The WhatsApp illustration the RM sent promised "₹24 lakh back after 10 years, 100% guaranteed, bank-approved", and the RM handed her a ₹25,000 shopping voucher "as a Diwali gift for choosing us". The bank earned first-year commission of 32% of premium, which appears nowhere in what she was shown. In June 2025, after reading the policy, Meera discovered that the ₹24 lakh figure was a projection at 12% gross return and the guaranteed maturity value is ₹16.9 lakh; she also realised the voucher was, in effect, a rebate. She has demanded a full refund with interest and copied the bank's nodal officer. The insurer's GRO has rejected the complaint because the 30-day free-look period has expired and the proposal form bears her signature.
1. Characterise the conduct of the relationship manager and the bank under the Insurance Act, 1938 and IRDAI's intermediary framework, and determine who is answerable to Meera.
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Two distinct breaches, with different consequences.
Rebate. Section 41 of the Insurance Act, 1938 prohibits an insurer, agent or intermediary from directly or indirectly offering any inducement not specified in the policy. A ₹25,000 voucher is a classic rebate; contravention is punishable with a fine up to ₹10 lakh. It does not matter that the bank or the RM funded it out of commission - an inducement is an inducement, and the fact that it was dressed as a festival gift is irrelevant.
Mis-selling. The illustration is a projection at 12% gross return presented as "guaranteed" and "bank-approved". Both statements are false representations about a non-participating product whose guaranteed maturity value is known and lower. This breaches the code of conduct for corporate agents - fair disclosure, no projection presented as guaranteed, disclosure of commission - and the insurer's own obligations, because the acts of a corporate agent in soliciting a contract for a particular insurer's product are treated as the acts of that insurer.
Who answers. The insurer is answerable to Meera because the agent sold its product under authority conferred by it. The bank is separately answerable to IRDAI as the registered corporate agent. The insurer cannot shelter behind the signed proposal form: a signature does not cure an oral guarantee that contradicts the product, and the insurer's own product literature must show what was actually guaranteed.
2. What relief should the insurer provide now that the free-look period has expired, and what should it do about the distributor?
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Relief to the customer. Free look is not the only exit. Where a policy has been obtained through misrepresentation, the insurer must cancel it and refund the premium; IRDAI's protection-of-policyholders framework treats mis-selling as a distinct ground, independent of free look. The correct resolution is cancellation with prospective effect, refund of ₹12 lakh with interest at a reasonable rate from the date of payment, plus appropriate compensation for the loss of use of money. The voucher must be recovered or adjusted against the refund.
Recourse against the distributor. Raise a debit note for the ₹3.84 lakh commission, invoke the clawback clause in the corporate agency agreement, and report the conduct to IRDAI for action against the corporate agent and the individuals concerned. The bank must also answer to its own regulator for conduct in a third-party product sold through its branch.
Documentation. Preserve the WhatsApp screenshot and the voucher evidence, issue a speaking order, pay within the timelines set by the protection-of-policyholders rules, and make a Section 41 complaint so the rebate does not become embedded as "business practice". Do not settle behind a confidentiality clause that suppresses the mis-selling - suppressing a regulatory breach is itself an obstruction and will be treated as aggravated conduct if discovered later.
3. What should the insurer's board and its committees take from this case, beyond closing the complaint?
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This is a control failure, not a customer-service complaint.
Product governance. The illustration in circulation was not the approved benefit illustration. The Product Management Committee should confirm that only approved illustrations are in use, that sales material at bank branches is version-controlled and centrally approved, and that WhatsApp/instant-messaging scripts are treated as sales material and archived.
Distributor oversight. The board-approved distribution policy should require annual due diligence of corporate agents, sample-based call-backs and mystery shopping on bank-channel sales, and a mis-selling ratio reported quarterly to the Audit Committee and the Board Risk Committee.
Remuneration and clawback. A 32% first-year commission on a single-premium product, with no clawback enforced, is a conduct risk. The Remuneration Committee should examine how the RM is incentivised and whether commission pay-outs are withheld pending persistency and conduct review. IRDAI's commission regime has removed caps but retained the obligation to disclose commission and manage the conflict of interest.
Reporting and remediation. Record the case in the mis-selling and complaints register, reflect it in the corporate governance report, and assess it in the Board's review of internal financial controls. Repeat findings should trigger a time-bound remediation plan with named owners; a single unaddressed case in a bank channel is usually a sample of many.