Group health mis-selling through a corporate agent
A corporate agent tied to an insurer sells a group mediclaim policy to a 300-employee IT services firm. The policy has a 30-day waiting period for illness, a 24-month waiting period for pre-existing diseases, a room-rent cap of 1% of sum insured, and maternity excluded. The agent's proposal email says the cover is at par with the employee's earlier policy, including maternity and no room-rent cap, and attaches the earlier policy schedule but not the new policy wording. The firm's HR signed the proposal after a 20-minute call. The agent earned 22% commission; the firm was told only that commission is included in premium. Six months later an employee's maternity claim of ₹2.8 lakh is rejected. HR complains to the insurer and the ombudsman, alleging mis-selling. The agent says HR should have read the policy. The signed proposal contains a clause that the firm has read the policy terms; the policy was issued and the premium paid.
1. Who bears responsibility for the misdescription: the insurer, the agent, or the policyholder? Explain.
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The insurer is primarily responsible for its agent's representation. A corporate agent acts for the insurer, and an email describing the cover as at par, including maternity and no room-rent cap, is a representation by the insurer's distribution channel, not a private aside. The signed declaration that the policyholder read the policy does not cure an active misdescription: a customer cannot be expected to detect a contradiction between the agent's email and wording that was never supplied. The policyholder has some duty to read, but that duty is reduced where the intermediary volunteers a comparison. The insurer should investigate the email and call record, and if the representation is established it should not rely on the maternity exclusion against this employee; it should either pay the ₹2.8 lakh claim or offer a fair reformation, and recover from the agent under the agency agreement. The agent's should-have-read defence is weak given the missing wording.
2. What should the insurer do about the rejected claim and the wider group of 300 employees?
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Treat this as a conduct incident, not a single claim. Review all 300 enrolments and the sales material; identify any other employee who bought on the same representation. Check whether the proposal form recorded the maternity exclusion and whether the policy wording was delivered before or after premium. If the misdescription was systematic, offer all affected members the option to cancel or to have maternity added with prospective premium, and honour claims already incurred in reliance. Do not quietly pay one claim and deny the rest, because that creates discrimination and regulatory risk. Root causes include the agent's product training, the approval process for comparison emails, and the absence of a pre-sale disclosure script. Fix them with a compliance review, a clawback of commission if the agency agreement allows, and a written warning. Report the incident internally and to the insurer's conduct committee.
3. What commission-disclosure and record-keeping failures are present, and what controls would you fix?
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Commission disclosure was inadequate. Saying commission is included in premium tells the customer nothing; the rate and amount should be disclosed on request and in a form the customer can understand. The 22% commission on a group health policy is material because it may explain the agent's preference for this product. Record-keeping failures include no call recording of the 20-minute sale, no copy of the policy wording sent with the email, no documented needs analysis or comparison, and no evidence that the HR representative understood the room-rent cap. Controls should include mandatory product-specific training, a pre-approved comparison template, delivery of wording and schedule before signature, a free-look reminder, and monitoring of complaint rates by agent. Commission disclosure should appear in the proposal and the renewal notice. The insurer should also test whether the agent sold to employees individually without their consent.