If you, the customer, are a day late in a credit card bill payment or a phone or electricity bill, you’re fined. Don’t pay for some time and you begin to get legal notices. The electric supply company will simply cut supply. The phone company will cut the connection. A small error in home loan repayment will make your credit history tainted. And you really have to run around to rectify that. Even after the problem is long solved. So what happens when the company makes an error? Usually you have to still pay for their systems being in error unless you really run around. But what if there is no error but a wilful intent to cheat. What should you do if your financial life is at risk due to a product that was sold to you by deceit?
Also Read Monika Halan’s earlier columns
That the insurance industry was mis-selling the unit-linked insurance policy (Ulip) is now beyond doubt. The drastic change in Ulip product structure proves that there was something wrong with the earlier structure. If we agree there was mis-selling, what is the industry and regulator going to do about it? Nothing, if they can help it. Readers who mailed me say that the standard response of the bank that sold the policy is this: The said person no longer works here, so it is no longer our problem—sort it out with the company. The company gives a standard response: You should have read the policy document. Duh. The policy document comes after you have paid the first premium. And it is mostly written to obfuscate rather than inform. And the 15-day free-look period was a joke to be enjoyed by sharp sales agents who would chuckle about it after another day of hunting.
I have been calling for a move by the regulator to set up norms so that those who have been mis-sold such products get a refund, if not what they were promised. While the regulators—both banking and insurance—are yet to even react to this, the first refund happened. Aviva Life Insurance Co. India Ltd has become the first company (nudged it seems by a TV channel) to refund the money of a group of policy-holders of Lifebond 5 in Varanasi. Beware, the financial consumer interest programme on CNBC, had a story (see it here http://bit.ly/9PamuE) on how agents of the company alleged that the branch manager and trainer gave them wrong information to sell the Ulip and now they want the money refunded to their customers. And that the company has agreed to some refund.
A number of mails and messages that are received by this newspaper of investors allege mis-selling. While it is not the job of the paper to act as an investor association, we can initiate a debate on defining mis-selling and discuss ground rules on how such cases should be handled. Luckily India does not need to reinvent the wheel when it comes to defining mis-selling. Most global regulators define it as an advised sale that does not meet the requirements for suitability, or the “know your customer” obligations. A broader definition makes it more touchable: It is the ethically questionable practice of a salesperson misrepresenting or misleading an investor about the characteristics of a product or service. In an effort to make a sale to a potential customer, a financial products salesperson could leave out certain information or describe a financial product as something the investor urgently needs, even though sound financial judgement would come to the opposite conclusion. The foundation of checking mis-selling the world over is a basic sales side criterion called suitability or the product match being sold to the person buying it. A suitability criterion means that an advisor or seller cannot sell a 60-year-old person a regular premium life insurance cover. Or he cannot sell a sector fund to a customer who says that she does not like to take excessive risk. India is seriously behind the curve as the UK, Singapore, Australia, the US and Hong Kong all have this as the foundation stone of their adviser regulation. India does not have such regulation and it is not even on the discussion table anywhere.
Till the regulatory regime comes around to seeing the world through the eyes of the consumer, here is what you can do. First, figure out if you have been mis-sold a Ulip. You have been mis-sold if a 10-year or more premium-paying product was sold to you as a three-year product. If you were verbally told about returns in excess of the 10% illustrative return allowed by the regulator. If you were not told that if you stopped paying the premium after one year you get no money back. If you were not told what part of your money the first-year charges and commissions would eat away. If you were not explained the basic logic of life insurance cover. If you were sold a Ulip as if it is a mutual fund with some free insurance thrown in. If you are over 60 and were sold a regular paying premium while you were looking for a regular income product. If you were sold a Ulip as an essential part of another financial transaction such as getting a home loan. The next part is less easy. You will have to form groups and begin engaging with the company, the regulator and possibly the legal system to get your money back.
Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, and can be reached at firstname.lastname@example.org