Is bancassurance model horribly anti-consumer?

Debashish Basu reflects on the recent policy on bancassurance model. He says banks anyway fleece customers for all kinds of fin products including insurance. The new guidelines give them a bigger licence to continue doing the same:

You walk into a bank to roll over a (FD). After you take your seat, the bank executives suggest that instead of continuing to invest in bank FDs, why not buy this insurance product, which has terrific features. The manager tells you that paying a regular premium of Rs 2 lakh a year will create a corpus of Rs 1 crore after 25 years. You fall for it. You walk out with a product that will mean less than five per cent annual return over 25 years. This is a far worse return than on the deposit your bank manager dissuaded you from rolling over in his own bank. Other bank depositors have met fates far worse than this.

Why would the banker persuade you to buy an insurance product and take money out of the bank? Unknown to you, the bank is acting as a sales agent for the insurance company. The bank will make more commissions than the interest income out of your deposit. Plus expenses couched as marketing support, use of banking infrastructure, etc.

This has been going on for over a decade. The only action by the so far has been to reduce the loot that agents like your banker can make off you.

About two weeks ago, the Reserve Bank of India (RBI) announced fresh guidelines for banks selling insurance, called “bancassurance”. Banks have been acting as agents, which means they have minimal responsibility towards you – their own customers of banking services. The new guidelines now give banks the option to become brokers. Insurance brokers have to necessarily take the side of the customer, not the insurance company.

But banks want to exploit their branch network to claw out commissions and expenses from their principal, the insurer. As brokers, they cannot do so because it is illegal for brokers to sell the insurance products of one company on an exclusive basis like an agent can. Also, they don’t want the fiduciary responsibility and liability attached to broking. Will banks become insurance brokers, encouraged by the new guidelines? The answer is obvious, but I am hoping at least one bank will prove me wrong by opting to become an insurance broker and shift to the side of their customers.

He advocates a financial redressal agency under Ministry of finance to handle and resolve the various manipulations consumer go through:

What could the RBI have done? As a principle, put the “conduct” of the financial services companies and the well-being of the customers at the centre of the regulatory system. This is now the guiding principle in most advanced nations. But since the Indian regulators will not do it, the time has come for the financial services division of the ministry of finance to step in and cull out the grievance-handling departments of different regulators and create a single entity to monitor the conduct of all financial service companies and make them accountable to customers. This idea was recommended by the (FSLRC) that labelled it the Financial Redressal Agency. The RBI governor has twice sneered at the FSLRC’s ideas – but the RBI’s weak bancassurance guidelines and irrelevant consumer charter issued last year convinces us that we need the redressal agency as soon as possible.

Well, in general there is sheer insensitivity to customer related issues in India..

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