The Bank Corporate Agent and the Retired Teacher
Prabhat Bank is a corporate agent holding tie-ups with one life, one general and one health insurer. At its Pune branch, staff sold a unit-linked plan to Mrs Kulkarni, a 68-year-old retired teacher, describing it as 'a fixed deposit with tax benefits' and showing her an illustration projecting a 12% annual return. The proposal recorded her annual income as Rs 12 lakh, although her pension is Rs 3.6 lakh, and her risk profile was ticked 'aggressive growth'. The single premium of Rs 40 lakh was funded by prematurely encashing a senior citizens' savings scheme. The policy was issued in October 2024 with a 30-day free-look period. In December 2024 she complained to the insurer, which replied that the bank was an independent corporate agent and that the matter was between her and the bank. An internal audit then found that branch staff had used pre-signed proposal forms, that the specified persons selling the product had not completed the prescribed certification, and that the insurer paid the bank 25% of first-year commission plus a persistency bonus.
1. Identify the regulatory and conduct failures disclosed by these facts and explain why each matters.
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Group the failures by who committed them, because responsibility does not shift with the point of sale.
Product misrepresentation. A unit-linked plan is not a fixed deposit and carries investment risk. Showing a 12% projected return, instead of the prescribed illustration rates with the mandatory risk warning, is a misrepresentation of the product's nature and of its return. For a 68-year-old first-time investor funding it from a safe senior citizens' scheme, this is the most serious failure because it goes to the heart of informed consent.
Unsuitability and income falsification. Recording income as Rs 12 lakh when it is Rs 3.6 lakh breaches the requirement that the proposal reflect the true financial position, and inflates the premium the sale can support. Ticking 'aggressive growth' for a conservative retiree who needs capital preservation and liquidity is a suitability failure, not an administrative slip. Premium of Rs 40 lakh against a pension of Rs 3.6 lakh also raises the question of whether the sale was affordable at all.
Process failures. Pre-signed proposal forms mean the customer did not verify or sign her own declarations, which corrupts the insurer's underwriting. Specified persons who have not completed the mandatory training and certification should not be selling at all; their sales are outside the licensed framework.
Remuneration design. A 25% first-year commission plus persistency bonus on a single-premium product creates a direct incentive to sell the largest possible ticket to the least sophisticated customer. Regulators scrutinise commission structures precisely because they predict mis-selling.
The insurer's own failure. A principal cannot disclaim responsibility for a distribution channel it appoints, trains, remunerates and monitors. The reply that the bank is 'independent' is itself a governance failure.
2. What remedies are open to Mrs Kulkarni, given that the free-look period has expired, and who is liable to her?
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The expiry of the free-look period removes the easiest remedy but not all of them, and the distinction matters.
Free-look. The 30-day window ran from receipt of the policy in October 2024 and closed in November 2024. Her complaint in December 2024 is too late for a free-look cancellation as of right. However, if she can show she never received the policy documents or the free-look notice, the period may not have started to run, so the first step is to check the dispatch and delivery record.
Mis-selling as a substantive grievance. Free-look is a cooling-off right, not the exclusive remedy. A sale procured by misrepresenting a unit-linked plan as a fixed deposit, on a falsified proposal showing income nearly four times the true figure, is a mis-sale. She can complain to the insurer's grievance redressal officer and, if rejected, to the insurance ombudsman having jurisdiction, and thereafter to the consumer forum. Realistic outcomes include cancellation and refund of the premium with adjustment for the market value of the units, replacement with a suitable product, and compensation. The falsified income entry is particularly strong evidence because it is in the insurer's own record.
Who is liable. The bank is liable to her for its staff's misrepresentation, but the insurer cannot stand behind it. The insurer appointed the corporate agent, remunerated it on a scale that rewarded volume, issued a policy on a proposal it had a duty to scrutinise, and is the counterparty on the contract. The regulator's expectation is that the insurer owns the conduct of its distribution channel and resolves the customer's grievance, recovering from the agent separately. Telling a 68-year-old pensioner that her complaint lies elsewhere is not a defensible response and is likely to be treated as a service failure in itself.
3. Recommend the governance and monitoring changes the insurer should make, and explain how each would have prevented or detected this sale.
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The changes should be aimed at the specific failure points rather than issued as a general circular.
1. Income and affordability verification. Require documentary proof of income for single premiums above a threshold, and apply an affordability rule for pensioners and senior citizens that caps premium as a proportion of verified income. This would have caught the Rs 12 lakh entry against a Rs 3.6 lakh pension before issue.
2. Suitability assessment signed by the customer. Replace tick-box risk profiling with a documented needs analysis, countersigned by the customer, and prohibit staff from completing it. A conservative 68-year-old could not credibly have been recorded as 'aggressive growth' on a form she had completed and read.
3. Welcome call and post-sale verification. A recorded call within days of issue, asking the customer to describe the product, its risks, the premium source and the expected returns, would have surfaced the 'fixed deposit' pitch while the free-look period was still open.
4. Certification and biometrically authenticated signatures. Block the system from accepting a proposal from an uncertified specified person, and require customer authentication at signature so that pre-signed forms cannot be processed.
5. Commission and persistency design. Level or cap first-year commission on single-premium products, and make persistency bonuses conditional on suitability audit results, not just on premium retention.
6. Supervision and consequence management. Mystery shopping at bank branches, monitoring of complaint and surrender rates by branch, clawback of commission where a mis-sale is proven, and escalation to termination of the corporate agent. An annual conduct audit reported to the board, with the audit findings on this branch acted upon, would have exposed the uncertified sellers and pre-signed forms long before a customer complained.
7. Complaint handling. A rule that a complaint against an agent is answered by the insurer on the merits, with the agent joined in, rather than deflected back to the customer.