The Delhi Insurance Ombudsman has awarded a senior citizen, Satish Shah (name changed), full refund of premium after his investment in a policy with HDFC Life of Rs3.2 lakh came down to Rs11,678 over seven years. The case highlights that the ‘generic benefit illustration’ which insurers gave in the past was a perfect mis-selling tool. The significance of the case is that the insurance ombudsman, who does not generally consider mis-selling cases, can consider them on merits when there is a huge loss, especially to a senior citizen.
In August 2013, Moneylife had written about how Satish Shah relied on the misleading benefit illustration of HDFC Life Young Star product that ignored the steep mortality charges which made up for 80% of the premium. HDFC Life benefited by keeping this hidden. It benefited with hefty mortality charges due to higher age of the insured as well as from the expensive waiver of premium (WoP) feature. After premium allocation and policy administration charges are deducted, what goes into investment is negligible and, hence, the corpus after seven years was dismal. In addition, there was 100% loading of mortality charges due to the policyholder’s medical condition.
Benefit illustrations of many old unit-linked insurance policies (ULIPs) were misleading. Agents would present deceptive benefit illustration, sanctioned by the regulator to seal the deal. If the benefit illustration was generic and ignored the steep mortality charges due to age as well as the loading due to health conditions, the projected returns are meaningless and getting consumers to buy based on flawed data was cheating.
Interestingly, at the Delhi hearing, HDFC Life stated: “The values mentioned in the illustrations are only illustration and the actual payment depends on what happens to the policy over the future lifetime of policy.” But does the insurer not know the mortality charges and loading at the beginning of the policy? They surely do. If so, why do they hide it in the benefit illustration? Does it not mislead the prospective client?
The Delhi Insurance Ombudsman’s stated, “I find that the insurance company could not explain the details and definition of short term and long term, administrative charges and mortality high rates under the plan, which was the reason of less surrender value, according to them. The Insurance Company could not show the details of regular statements sent to the complainant while they were deducting huge monthly charges under the policy. They also could not show that the market crashed drastically during this period. This is clearly a deficiency in service by the insurance company. The complainant is a senior citizen of 69 years and such a policy is a mis-selling.”
While mis-selling is a reality and the amounts involved are significant, the bad news is that you cannot complain about mis-selling per se, especially since policyholders sign all the important documents. However, if you are able to prove fraudulent claims (of benefits) or deliberate omission (tiny print that can’t be read), you can hope to have your money refunded by approaching the ombudsman and arguing your case under the head “any dispute in regard to premium paid or payable in terms of the policy.”
HDFC Life’s Customer Care made the policyholder run around. Mr Shah’s frustrations can be seen in his email: “It would be a matter of shame for your company if Senior Citizens are duped of their hard-earned money in this manner by your slick-talking agents and smooth customer relations and publicity campaigns like “sar utha ke jiyo” while your policies actually cut their throats.”
It was like a slow death by keeping him in the dark about what was happening to his funds and then springing a surprise with policy closure when the fund value fell below the level of one premium amount. Will the regulator proactively help the old ULIPs cases which were daylight robbery of investors’ savings?