Reliance Life Insurance had mis-sold ULIPs worth Rs12 lakh. Moneylife had taken up the issue with IRDA and written cover story on it. Justice is served with return of investment along with Rs1.75 lakh interest, which is about 7.5% per annum
Arvind Injamuri, 65, a standard 9th failed, retired railway employee living at Solapur, decided to use his retirement kitty to secure his complicated family’s future. He was fixated on putting money in an insurance policy. Between January-March 2011, Reliance Life’s Colaba branch (in south Mumbai) lured Mr Injamuri to make investments worth Rs12 lakh into the highest NAV (net asset value) ULIP (unit linked insurance plan) by dangling the false carrot of a TVS Scooty Pep available on bringing in policy premiums of Rs7.5 lakh. In the process, the company shared with him the very lucrative “Fantastic Contest” that it was running for its advisors. These schemes that insurers run for their agents and distributors are the biggest incentive for mis-selling with incentives that escalate from Rs150 cash voucher to a Honda City car.
All the nine policies had been issued in the names of his family members as Mr Injamuri did not qualify for highest NAV policies. He was seriously, and correctly, worried about inaccurate personal details, wrong or unidentifiable photos, PAN details of sister when she had never applied for one and forged signatures in the policy documents have rendered them worthless, since there are bound to be issues if and when a claim has to be made.
Moneylife had taken up the case with the Insurance Regulatory and Development Authority (IRDA) after examining the policy documents. The issue was top in the list of life insurance memorandum submitted to IRDA chairman when he addressed the Moneylife Foundation event on 16 May 2012.
The 19 April 2012 cover story gives the details of this incident. Read How you can get ripped off by the staff of insurance company themselves!
Mr Injamuri has finally got justice with the return of the Rs12 lakh investment along with Rs1.75 lakh interest, which is about 7.5% per annum. According to a IRDA senior official, “A strong signal needed to be sent to insurance companies. IRDA protects policyholders’ interest and have resolved numerous such cases.”
The journey of Mr Injamuri’s struggle to get back his money started in the first week of January 2012. He got to know about Tarun Mitra Mandal (TMM) (www.thetmm.org), a registered NGO set up in 1968. Volunteers of TMM, including Shailesh Gala, an MBA, waded through hundreds of papers and documents and were convinced that Mr Injamuri had been royally duped. They agreed to help him draft a complaint to the insurance ombudsman and to IRDA. However, Mr Gala also decided to hand over the papers to Moneylife in order to help the victim.
When Moneylife wrote to Reliance Life Insurance on 16 March 2012, its corporate communications official asked for a week’s time to study the issue and then sent us this reply on 22 March 2012. “The customer has purchased and cancelled a total of 18 policies in a period of four months. His pattern of buying and cancelling policies in quick succession falls under ‘unusual’ transaction category and is being investigated. As of today, nine policies are active, five have been cancelled under the Free Look period, and the customer issued “stop payment” advice on four applications. The refunds on cancelled policies, paid through cheques, have been en-cashed. With reference to the nine active policies, purchased over a span of few months, the customer has issued all cheques (Moneylife has seen proof of DD payments) and signed everywhere indicating a strong intention to purchase a policy from Reliance Life Insurance. After months of purchase, the customer put in his request to cancel the HNAV Guarantee product. His request for cancellation is much beyond the acceptable Free Look Period, as exercised by him earlier, and does not qualify for a full refund. However, since the customer is claiming that he wanted the policy in his own name and he is not eligible for the policy, we will accept his cancellation request, as an exception. The customer has been communicated accordingly.”
The problem was that the Free Look cancellation request form clearly stated that refund will be done at current NAV. It meant that Mr Injamuri will be at a loss based on the equity market’s performance. He does not understand the equity market, but the product mis-selling also involved putting his funds with highest equity exposure. After raising the issue with Reliance Life to seek full return of investment along with interest, Mr Injamuri got back what he truly deserved even though it was after a long delay.
Moneylife contacted Reliance Life on 5 February 2013 for its response regarding the refund, but there has been no answer till now. It was indeed a positive end to the two year saga for Mr Injamuri. But, will insurance companies give justice to all mis-selling cases? Probably not…
But, Mr Injamuri, being financially illiterate, putting his lifetime savings in dubious life insurance products and the insurance policies riddled with blunders got attention from Moneylife and IRDA. Being a virtual country bumpkin also worked in Mr Injamuri’s favour…
How you can get ripped off by the staff of insurance company themselves!
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JAYNISH SHAH FINANCIAL SERVICES
Jaynish_ash@hotmail.com
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Many implicitly trust insurance companies. We present you the chilling story of what can happen when a gullible customer walks into an insurance office
Arvind Injamuri, 65, a 9th std fail, retired railway employee living at Solapur, decided to use his retirement kitty to secure his complicated family’s future. This financial kitty included some money from sale of land as well. His understanding of insurance was probably shaped by the advertisements on television and he thought it was simple enough to walk into an insurance company’s office to buy the right policies. He has some vague idea about tax savings, but is so financially illiterate that he refers to all insurance policies as LIC (Life Insurance Corporation of India) policies.
The first thing that strikes you about Mr Injamuri is his lack of sophistication. He is the kind of customer that fancy private banks don’t even want in their lobbies and his knowledge of English doesn’t go beyond the most basic. But he had over Rs17 lakh in his bank account and was looking for financial products to shop!
There are plenty of Bollywood movies and TV serials which tell us exactly what happens to someone like this. Mr Injamuri’s story is no different. The problem is that this robbery happens at insurance companies’ offices regulated by the Insurance Regulatory and Development Authority (IRDA) and overseen by the finance ministry that is accountable to India’s Parliament.
Worse, Mr Injamuri’s story is not an outlier either. He first went to ICICI Pru Life Insurance’s office and was sold a couple of regular premium polices worth Rs1 lakh. He soon realised that his need was a single premium policy. After making a complaint to ICICI Pru Life about mismatch with his needs, the policies were cancelled and refund of Rs1 lakh given to him.
He then approached to the Colaba office (south Mumbai) of Reliance Life Insurance. Once it was clear that he was in the market to buy substantial insurance, he was treated like a king. Carried away by the smooth talk and the illusion of trust, Mr Injamuri initially signed a series of papers and gave Reliance Life cheques for Rs8 lakh to get six policies. In between, he decided to visit Reliance Life’s Fort branch (also in south Mumbai) to see if they would offer him a share of commission. He was welcomed there too, but the advice was different. The Fort branch had more scruples and sold him three policies of Classic Plan (ULIP) for Rs3 lakh.
But it turns out that Mr Injamuri wasn’t such a simpleton. He realised that the policy documents from Colaba had forged signatures and, hence, issued stop cheque payment instruction. It stopped the payment towards four policies from Colaba branch worth Rs6 lakh, while the cheques for two policies worth Rs2 lakh were encashed. Mr Injamuri complained about the forged signatures to the Colaba branch manager who told Mr Injamuri to sign on a cancellation request. Little did Mr Injamuri realise that all his policies, including those issued by the Fort branch (which had no problems), would be cancelled. Mr Injamuri received a refund of Rs5 lakh.
Mr Injamuri alleges that the Colaba branch, under the guise of cancelling their own toxic ‘highest NAV’ policies (sold merely to qualify for the Fantastic Contest criteria) actually cancelled the ones issued by the Fort branch—again taking advantage of Mr Injamuri’s gullibility in trusting them and his inability to understand the complex documentation of insurance products. It also shows inter-branch rivalry as the Colaba branch was interested in being the exclusive intermediary of Mr Injamuri. We believe that the Classic Plan (also part of Fantastic Contest criteria) was far less toxic; but naturally, the Fort branch manager, irked at the cancellation of policies, asked Mr Injamuri not to come back and to get all his advice from the Colaba branch.
Since Mr Injamuri was clueless about being sold dubious policies, he fell for their apparent readiness to make amends by cancelling policies and to make a clean start in doing business with him. If Mr Injamuri had walked away at this time, he would have been at no loss as he had already received the necessary refund. Yet, he was fixated on putting money in an insurance policy. The Colaba branch now lured Mr Injamuri to make all his investments through them and promised to do it correctly. They sold him their highest NAV plans (see box for details) by
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dangling the false carrot of a TVS Scooty Pep available on bringing in policy premiums of Rs7.5 lakh. In the process, they shared with him the very lucrative Fantastic Contest that the company was running for its advisors. These schemes that insurers run for their agents and distributors are the biggest incentive for mis-selling. (See box on the incentives that escalate to iPads and a Honda City car).
Worse, the officials now asked him to provide demand drafts to ensure that he does not issue ‘stop payments’. Mr Injamuri complains that the officials had assured him that the cost of the DDs (demand drafts) would be reimbursed to him. Between visits to his Mumbai home at Kamathipura lane (a red light area in Mumbai) and Solapur (Maharashtra), the branch manager and his assistant managed to stick him with nine policies worth Rs12 lakh.
When he received the documents, he discovered that all the nine policies had been issued in the names of his family members when he was clear about wanting some policies in his name. Our analysis of the papers suggests that this was done only because Mr Injamuri did not qualify for highest NAV policies. That it was a clear case of deception, or even fraud, is evident from the following:
• All the policies had the proposer as Mr Injamuri; the annual income mentioned on the policies is variously shown as Rs80,000, Rs1.8 lakh, Rs2.5 lakh, Rs3 lakh, Rs3.8 lakh, Rs4 lakh and Rs5.8 lakh. Where is the question of income when Mr Injamuri is a retiree and is buying insurance from his retirement funds?
• His wife is a housewife, but the proposal mentions her profession as private tutor earning Rs2.5 lakh. Another proposal mentions her as a housewife, but still has income of Rs2.5 lakh; this time the source of income is investments.
• His sister is shown as a housewife in one proposal with no income. Another proposal has her as conducting tuition classes and earning Rs3 lakh annually.
• According to Mr Injamuri, the signatures of his family members were forged. He adds that his second wife is completely illiterate and cannot even sign her name. She has to give thumb impression instead of signature.
• The officials had also affixed wrong or unidentifiable photos. Moreover, Mr Injamuri claims that his sister does not even have a PAN card. Yet, there were PAN card details attached to the policy. Worse, the date of birth in that PAN card was 10 years lower than his sister’s actual age—this too was done to manipulate her age-qualification for the highest NAV plan.
• The witness details in the policies were dodgy. There were only first names such as ‘Ganesh’, ‘Satish’ or ‘Akshay’ with no surname. All three had the same mobile number and no address. In case of persons who are not literate or cannot understand English, the policy document usually names the person who has explained the policy details or filled out the form. In this case, those were just first names such as Dinesh or Vaibhav.
Mr Injamuri now has nine highest NAV policies worth Rs12 lakh for a 15-year term, but, fortunately, they are single premium policies. They do not fulfil insurance needs as it is merely 1.1 times the premium. The investment component will get highest NAV only if the policies are kept in-force for 15 years.
Here is a person, who ought to have stuck to simple products like a bank fixed deposit or a post-office account or an annuity product. But what with Sachin Tendulkar and Amitabh Bachchan touting the virtues of insurance and making them seem so safe, simple and quick to purchase, persons like Mr Injamuri are convinced that insurance will secure their family’s future.
Mr Injamuri is seriously, and correctly, worried that wrong details, photos and signatures in the policy documents have rendered them worthless, since there are bound to be issues if and when a claim has to be made. But when he sought to cancel the policies, based on what appears to be fraud and forgery, he was told that the free-look period was over. Since the first week of July 2011, he has been making the rounds of the branch; he even managed to escalate the complaint to the regional manager. Interestingly, he insists that the branch officials admitted to their wrongdoing before the regional manager. They also promised to cancel policies worth Rs12 lakh and refund his money. But instead of doing so, he was given a royal run-around.
It was in the first week of January 2012 that Mr Injamuri got to know about Tarun Mitra Mandal (TMM) (www.thetmm.org), a registered NGO set up in 1968. Volunteers of TMM, including Shailesh Gala, an MBA, waded through hundreds of papers and documents and were convinced that Mr Injamuri had been royally duped. They agreed to help him draft a complaint to the insurance ombudsman and to IRDA. However, Mr Gala also decided to hand over the papers to Moneylife in order to help the victim.
When Moneylife wrote to Reliance Life Insurance on 16 March 2012, its corporate communications official asked for nearly a week to study the issue and then sent us this reply on 22 March 2012: “The customer has purchased and cancelled a total of 18 policies in a period of 4 months. His pattern of buying and cancelling policies in quick succession falls under ‘unusual’ transaction category and is being investigated. As of today, 9 policies are active, 5 have been cancelled under the Free Look period, and the customer issued stopped payment advice on 4 applications. The refunds on cancelled policies, paid through cheques, have been en-cashed. With reference to the 9 active policies, purchased over a span of few months, the customer has issued all cheques (Moneylife has seen proof of DD payments) and signed everywhere indicating a strong intention to purchase a policy from Reliance Life Insurance. After months of purchase, the customer put in his request to cancel the HNAV Guarantee product. His request for cancellation is much beyond the acceptable Free Look Period, as exercised by him earlier, and does not qualify for a full refund. However, since the customer is claiming that he wanted the policy in his own name and he is not eligible for the policy, we will accept his cancellation request, as an exception. The customer has been communicated accordingly.”
This neat explanation fails to address the issue of fraud and forgery alleged by Mr Injamuri. It also does not state the reason for the alacrity in cancelling the policies if the company’s officials had played by the book. Clearly, it is an attempt to get rid of the problem—something that every insurer does only if they think that the customer is bound to cause serious trouble, lead to bad press or go to a consumer court. Moneylife also has an email from IRDA that it is looking into the complaint.
But if Mr Injamuri was financially illiterate and virtually a country bumpkin, look at this completely contrasting example. Mr Patwardhan (name changed) is a chartered accountant (CA) and actively into research and trading. His son works with a US hedge fund and is on personal terms with the heads of most finance companies in India. But here is what Mr Patwardhan (Sr) wrote to us.
His wife, Jaya Patwardhan (name changed), 56, vice-principal of a science college, was sold the Kotak Retirement Income Plan—a product which has an entry age cap of 60 years. Her bank’s wealth managers sweet talked her into signing a blank form and assured her that all the details would be filled in as part of their customer service.
She discovered to her horror that she had been tied into a regular premium policy, which required the payment of a premium of Rs1 lakh per annum for 10 years. Obviously, she was in no position to make the payments after retirement, when she needed to live on her savings. So, after paying three premiums (Rs3 lakh), she surrendered the policy only to receive a value of Rs2,89,188. In effect, she had lost interest for three years and had a portion of her investment sliced off. What is more chilling is the outright cheating outlined by Mr Patwardhan, in an email to Uday Kotak, while fighting the mis-selling case. He writes:
“1) Your proposal form (for the policy) unequivocally says Kotak Retirement Plan – without cover/single premium.
2) In reality it turns out that Jaya has to pay premiums for the next 10 years. Absolute nonsense as Jaya was then 56; how and why will she pay premium of Rs1,00,000 post-retirement?
3) The proposal form clearly states that the form is to be filled in by proposer herself (a requirement that is never followed in practice). The form was filled by your staff; Jaya’s signature was taken on a blank form.
4) Your renewal notice details the policy as Kotak Retirement Income Plan with cover.
5) Your receipt describes it as Kotak Unit Linked Retirement Income Plan (unit linked without cover)
6) The policy document calls it Kotak Retirement Income Plan without cover.”
Mr Patwardhan’s family has a history of mis-selling experience with Kotak. In 2009, his mother-in-law, Mrs Joshi, 80, was sold a 10-year policy that required her to pay premiums until the age of 90. As Mr Patwardhan correctly wrote to Uday Kotak and company officials in an email—“…if your colleagues were indeed competent and your corporate policies were not conducive to their acts of commission and omission a 10-year policy would not have landed on the lap of 80-year old Mrs Joshi and your colleagues wouldn’t have said that she should pay premiums till she reaches 90. Or claim that Mrs Joshi opted for this policy on explaining the great advantages to her. Don’t you think this is a cruel joke considering her age and condition?”
His question is the same as ours. Yes, companies cheat consumers to maximise their returns or meet targets, but what are regulators and policy-makers doing when they allow such policies to be sold and do not impose crippling punishments for such mischief?
How can an insurer’s documentation such as proposal plan, receipt, renewal notice have such gross errors? IRDA takes nearly a year to clear every new scheme and even longer to grant all the necessary permissions to a new insurer – but what does it really check?
Sometimes, even when the insurance policy is technically within norms, it is still wrong for the saver. Richard Fernandez (name changed) a Moneylife Foundation member, had this query for us.
“I am 74 years old and hold an ICICI Prudential LifeStage Pension policy, sold to me by my bank relationship manager. I have paid a premium of Rs25,000pa for three years. The next one is due now. There is no insurance cover in this policy and the surrender value today is 92%. Should I pay the next premium or surrender the policy?”
We sent the query to the company to understand its view on the sale. Here is what it said. This was an annuity policy that had an accumulation phase of 10 years. The entry age was capped at 70, so he was technically eligible, but just barely. At the time of selling the policy, the company says, Mr Fernandez had indicated that he had no immediate fund requirement and, hence, justifies selling him the deferred annuity policy with no insurance. Since Mr Fernandez’ circumstances have changed and he now requires regular income, the company advised him to surrender the policy and invest in alternative options like fixed deposits which would fetch him as much as 10.5%.
But was it likely that a 70-year old, living on his savings would not need an income for the next 10 years? How beneficial is an annuity that would start at 80? Surrendering the policy delivers a double whammy. He not only has a direct loss of 8% on his investment plus charges (premium allocation and policy administration charge) but also a notional loss of at least 8% per year (24% without compounding) that a fixed deposit would have fetched him over the past three years.
In the Cover Story “Tax-saving traps to avoid” (24 February 2011), Moneylife wrote about Ramesh Kumar (name changed) who invested Rs1 lakh for 80C tax savings in Reliance Life’s highest NAV ULIP after a strong pitch by its Colaba branch, at the recommendation of his trusted bank manager. Ramesh was 58, a diabetic and had a heart condition and was not looking at a 10-year policy. He was told to pay yearly premium for only three years and after that he could apply for withdrawal. His first surprise was to find that the policy document had discrepancies in health information. He was told not to worry and that the health aspect would not affect the insurance which was only five times the premium. He was told that issues would crop up only for insurance covers of Rs10 lakh plus. This was false. Ramesh was also not told that the highest NAV condition needed a 10-year investment and withdrawal in the 4th year would lead to a 20% deduction. When we wrote about him, the PR agency called to ask about his identity. On figuring out that he was a civic activist, they promptly offered to refund his money.
Everyone in a small village near Malvan has a child plan. Will it help build corpus for education?
Dilip Samant, financial planner, says, “According to the recent survey on the concerns of young parents, saving for the children remains the top priority for 72% of Indian parents. So a majority of them go for child insurance with the hope that it would help them cover the ever rising cost of education of their children. Recently, I had been to a small place near Malvan, where I was shocked to learn that almost all the parents had child insurance and were paying hefty premiums every year.”
Sachin Tendulkar promotes Aviva Life Insurance child plans; these products are heavily advertised and are emotionally attractive for parents. Waiver of Premium (WoP) is a powerful concept. The concept that the insurance company will pay future premiums in your absence is compelling and surely works in favour of the child, if the earning parent dies.
Traditional child plans have assured, yet low, returns. The question is: If the policyholder survives the term, will there be enough corpus generated to fund the child’s higher education after the product consumed a large part of the premium as charges. How does a customer choose which is a better child ULIP? There are huge variations in the mortality charges and different products have different approaches in recovering the WoP charges. (See Moneylife, 25 August 2011).
Many ethical financial advisors, and we at Moneylife, have pointed out that the highest NAV insurance product is harmful. Melvin Joseph, a financial consultant writes, “The regulator in India should understand one thing. We, as a nation, are far behind in terms of financial literacy. We cannot expect a typical insurance customer to buy a policy after understanding what proportion is going into equity and debt. We have to understand this market reality and design products accordingly.
Highest NAV is a toxic product which will offer debt returns to the customer on his long-term savings. The main catch is that the NAV guarantee applies only in case of maturity. The product is mis-sold like a guaranteed return policy in many places.
IRDA should approve such complicated products only with conditions. They can target the urban customers who can afford a high ticket size. Keeping the minimum ticket size at Rs1 lakh or so is an option. We cannot allow these products to be sold in rural and semi-urban areas. Earlier, the regulator asked Actuarial-funded policies and Universal Life Policies to be withdrawn. This is the duty of the regulator and insurance companies.” Indeed, the IRDA chairman has been talking about banning wrong products at several industry seminars, but strangely enough, no attempt has been made to investigate specific complaints quickly and seriously. IRDA has also said that it intends to take serious cases on a suo moto basis to benefit customers. When will this happen?
In connection with our previous Cover Story on mis-selling, the managing partner of an insurance company wrote to say that we had covered “only the tip of the iceberg.” He goes on to say, “Life insurance, as you would know, has a huge social benefit by offering protection to the family, which is our primary business and it makes me very sad to see what is happening in the industry today. It is all about greed and deceit. Agents are being lured with huge commissions, attractive contests, i.e., Mercedes, BMW, Audi cars, etc and being ‘seduced’ with overseas trips to Amsterdam, Bangkok, Tashkent at the cost of clients’ money. Companies and their managers are chasing short-term benefits, i.e., profits and valuations. What is rather surprising is that the regulators either do not understand the products they are approving or do not care… it is hard to tell.”
IRDA has come out with draft guidelines on needs analysis by the intermediaries and the insurance companies. This analysis is necessary before completing the sale of a life insurance policy to ensure that the product sold is suitable for the prospect. IRDA can also make it impossible to sell certain products to customers of a certain age group, income level or education, which should get reflected in the guidelines.. The draft guidelines leave enough scope for people like Mr Injamuri to be fooled.
JAYNISH SHAH FINANCIAL SERVICES
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