IRDAI Penalises Insurer Rs 1 Crore For Mis-Selling Insurance To 88-Year-Old

The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a fine of Rs 1 crore on Canara HSBC Life Insurance Company for mis-selling a deferred annuity policy to an 88-year-old customer through Canara Bank. The regulator found multiple lapses in product eligibility, suitability assessment, verification, documentation and disclosure during the sale.

What was the policy sold?

The case involved a non-linked, non-participating individual annuity plan that was sold to a senior citizen. The policy carried an annual premium of Rs 2 lakh for four years, taking the total premium commitment to Rs 8 lakh. The customer’s daughter was shown as the annuitant under the policy sold. However, the approved age entry of the product was set between the ages of 30 and 80 years. The individual to whom this was sold was already 88 years old when this policy was sold. This means that the transaction did not comply with the basic eligibility criteria.

Why did IRDAI call it mis-selling?

The regulator identified several shortcomings in the sales process. One of the key concerns was the absence of an adequate suitability and financial assessment despite the customer’s age. In a report by Livemint, IRDAI states that the annual premium represented around 20 per cent of the customer’s self-declared annual income of Rs 10 lakh. The insurer also did not obtain documentary evidence of his financial capacity before the bank proceeded with the sale.

The verification call was furthermore a major concern. IRDAI found out that the call did not properly establish whether the customer understood the important features of the policy. This included who would receive the annuity and the premium payment obligations. Inconsistencies were found in the proposal documentation. Among them was a mismatch in the geographical details that were filled in the form.

What has IRDAI directed the insurer to do?

Aside from the Rs 1 crore penalty, IRDAI has directed Canara HSBC Life to audit policies sold to customers above 75 years of age through Canara Bank over the last three financial years. The insurer must identify potential violations involving eligibility, suitability and disclosure. It has also been asked to strengthen its oversight of corporate agents and improve controls around product suitability and proposal forms.

The larger lesson is that a policyholder’s signature or payment does not by itself make a sales process appropriate. Insurers and their distribution partners are expected to ensure that the products they pitch for sale are suitable for the customer.