Have you ever been mis-sold an insurance policy ? I write this at the back of this LiveMint article which says that investors lost 1.5 trillion Rs due to insurance mis-selling over 7 years.
It is worth pondering why this would happen.
Investor apathy
In my mind, the biggest reason for this is investor ignorance. Let me exemplify with my own example.
Way back in 2000 when I knew nothing about personal finance or financial planning, I was, like many of you, a sitting target for insurance agents. The agent manifested itself in the form of my landlord.
I mean, look at this – a chap who rented out his flat to me also ran a fix-your-sofa business and was also selling insurance policies to investors.
Needless to say, he was with LIC and he had come armed with some 3 or 4 policies to sell. He threw known words like retirement, children education and marriage to me and lesser known words like endowment, money back and whole like insurance policies. The word term insurance wasn’t there. I understood later why.
I remember the conversation began with “how much surplus do you have in a month”. In retrospect, I thank my then employer for paying me so less that there was just a Rs 15,0o0 per annum I could afford for my landlord as premium fees. He sold me the product. Sorry, should I say I bought the product ? It was my fault I got mis-sold !
I think we investors need to first understand our shortcomings and then begin to bridge that. The biggest failure of an investor is his un-acceptance of the fact that he knows nothing. If you are humble in this acceptance, the whole world will be available to you to learn. However, many of us think irrationally and we make decisions based on a broken down understanding of a product.
Back to my landlord. He was back again the next year with fancy products called ULIPs and was targeting a Rs 1.5 lakh premium as I had just returned from abroad. This time, my limited information on personal finance led me to conclude for him that his retirement was at stake and that he needed the product himself. He literally kicked me out of his rented apartment.
Mis-selling happens everywhere
Kirana stores sell real estate too. Even today, my kirana store chap says he has brochures of posh flats which are being launched and whether I would be interested. Because I respect his delivery boy to send across aata and daal at 10 pm in the night, I don’t lecture him – I politely decline and say I am broke.
I was also reading somewhere that Manesar is coming up so rapidly that if your car zooms past any of those places where a real estate project is launched, you will have agents flashing brochures at you and requesting for a site visit – much like the small newspaper boy who sells newspapers and other knick knacks to you at the traffic signals in your city.
Such agents are agents of trouble – they are the middle men delivering you to the real estate sellers and will leave the moment they pocket their commissions.
Investor ignorance is the main reason such things happen. This was again demonstrated by the recent scams like SpeakAsia and StockGuru.
The world is replete with examples of mis-selling where gullible investors are taken for a ride.
Investors can create any amount of hue and cry, the police will step in to arrest the scamsters; the regulators will toughen its measures by introducing more regulations but at the end of the day more crooks will evolve to cheat you. If all the policing and regulations could have eradicated this malaise, we should have got rid of every problem related to finance in the last 100 years of strong regulations that have evolved here in India and existed in the Western world.
So here is the truth and we must take this with a pinch of salt – stop blaming people who cheat you and mis-sell products to you; stop blaming the regulator and the government for things that happen to you – look within and educate yourself.
After all, knowledge is power and it in in your power to up-skill yourself to keep the agents of havoc at bay.
Thoughts ?
Wonderful article Radhey! I totally agree that ignorance is one of the main reasons of so called ‘mis-selling’. Not everyone out there is out to cheat.The product being sold may sound right to the guy selling it, but you should at least have the basic understanding of whether it will meet your needs.If you are not self-aware, how will you put the right questions to understand the product better. Nothing can beat awareness and knowledge.
Thanks Kiran for appreciating. How I wish more and more of us can realize our short comings rather than pointing fingers at others. I hope that days comes sooner rather than later !
A lot of misspelling or I should say mis – selling is done.. Mostly it is done by a person whom we trust blindly. We tend to forget that he/she might place her own self before us.
How can we control this Rajiv ?
I think we should not trust blindly ANYBODY.
Nice article Radhey. I think I came across one insurance agent who genuinely believed that his product was worth it. He even had his own children invest in it. I guess most of them go with “Instead of keeping the money idle in the bank…” reason but are not aware of other products.
Yes Rohit you are right – the worst part is that even sellers of financial products do not know whether the products are good for them or not.
Very true Radhey. In fact, i believe that unless you do not fall, you cannot rise. I had “mis-bought” these products too, but i am now much more aware and make sure that nobody in my acquaintances buy them as well!
Good stuff Sumeet – good to see that you are spreading the word around.
The irony of our lives is that we do a detailed research when we are buying a phone for Rs. 10,000 but barely see the details when we are making an invetsment of Rs. 50,000
Surprising but true… and this is why most of the mis-selling happens..
Yes, you are so right. How do you think people can correct this ?
@C A Karan Batra- you have a valid point.
Great topic for a post! Mis selling could be a result of various factors, investor ignorance being just one them. Steep targets set for agents, unorganised broker driven market, lack of adequate academic skills and knowledge of products by the insurance agents are the other important factors.