Economic Survey 2023-24: Misselling of insurance policies is eroding buyers' confidence

The insurance sector is facing a troubling trend: Misselling of products. From eager salespeople to misleading insurance practices, consumer trust is eroding.  This isn't just a few bad actors – it's a systemic issue demanding attention. The path forward requires a two-pronged approach. First, industries like insurance need to streamline claims settlement process and reduce rejections to regain policyholders' confidence. Secondly, financial institutions must embrace ethical practices. They should acknowledge misrepresentation and compensate for resulting losses. Only then can a healthy and trusting relationship be rebuilt between businesses and consumers.

In its latest Economic Survey, the Ministry of Finance has projected a robust growth trajectory for the upcoming fiscal year, driven by strong consumer demand and industrial expansion. However, the survey also highlighted the critical need for deeper insurance inclusion to safeguard the financial well-being of the population.

According to the Economic Survey: "Product misselling is too rampant to be dismissed as an aberration of a few overenthusiastic sales personnel. The same can be said of the insurance industry as well. Prompt and reasonable settlement of insurance claims and a lower rejection rate are necessary to increase insurance penetration. Acknowledgement of misselling and misrepresentation and compensating for consequential losses is a good business practice enjoined upon stockbroking, fund management, banking and insurance firms."

Sarbvir Singh, Joint Group CEO, PB Fintech, says, "The Economic Survey raised the crucial and prevalent issue of product mis-selling in the insurance industry. With tech advancement and the rise of AI & ML, it has become a lot easier for the industry to detect and prevent fraud in the early stages. To further boost consumer trust and insurance adoption, we need prompt and fair claim settlements. Identifying and correcting mis-selling and misrepresentation, and compensating for losses, are non-negotiable practices for sectors like banking, insurance and fund management. The stakeholders need to unite in their efforts to bring the consumer and the industry on the same page to build better trust and transparency between them."

The survey called for targeted policies to increase insurance penetration, particularly in underserved rural areas, and encouraged collaboration between the government and private sector to innovate and promote inclusive insurance solutions.

"While our economic indicators show promising growth, we must address the gap in insurance coverage across the nation, particularly in the health insurance sector. Expanding access to affordable insurance products will not only protect individuals and families from unforeseen financial shocks but also contribute to the overall stability and resilience of our economy," said Singh.