Banks are using their generally secret depositors' data or customers' profile to grab clients to sell insurance policies. This is despite the fact that the government has intentionally separated the two businesses to prevent a nexus and reduce the risk factor for ordinary investors. Banks tout the practice as an investor service, a restrictive service though limited to a specific insurance company policy or policies.

Almost every insurance company has sales tie-up with a specific bank, promoter or not, which won't sell policies of other insurers. For instance, HDFC will sell only HDFC Standard Life, but not Tata-AIG or Bajaj Alliance or LIC of India or, for that matter, any other insurer. The same is the understanding between ICICI Bank and ICICI Prudential. Insurance company uses sister bank staff, bank premises, bank infrastructure, client profile, etc. to tap captive bank customers to sell policies. Bank, on its part, makes false or illegal return projections to innocent or gullible investors to sell insurance policies to earn fat commissions. Investors are advised to take ECS facility for timely payment of insurance premium to avoid policy lapse. This means policy holder has to maintain additional cash balance with bank, getting minimum return for extra cash deposit in savings account, which is good for both bank and insurance company in terms of business. For ULIP, unofficial return promised to a prospective policy holder by bank acting on behalf of insurer is generally between 25 and 30 per cent per annum. Insurance policy holders are never told about the management fees and other charges, which will be mandatorily deducted irrespective of the quantum of return, and risk factors. Such charges could vary anything between 8.50 and 12.50 per cent. Innocent policy holders are never explained about this aspect. Policy holders may lose even a good part of their principal amount, paid to insurer as premium, if policy is discontinued after a year or two.

For instance, a ULIP policy holder of HDFC Standard Life, who may have paid an annual premium of Rs 1 lakh in July, last year, to open a pension policy, stands to lose as much as nearly Rs. 24,000, from the principal amount if the policy is discontinued after a year, or in July, this year. This is despite a unit price appreciation of nearly 30 per cent at the end of the year because of the stock market boom. The policy holder's premium savings lost the value because it was never invested in toto, after the statutory deduction of Rs. 4,000 as service tax and Rs. 120 as education cess. The insurance company ate up as much as 40 per cent of the first premium amount and invested only Rs. 60,000. If this is not cheating the policy holder, what it is. Was the policy holder ever explained by the bank that he would lose 40 per cent value of his first annual premium payment before investment in units? The policy administration charges are Rs 60 per month. It will increase by five per cent in August 2010 and “then by five per cent of the then applicable policy administration charge on each subsequent policy anniversary”.

Insurance companies are clearly duping investors or policy holders under the very noses of the respective insurance, bank and market regulators such as IRDA, RBI and SEBI. The Insurance Regulatory and Development Authority (IRDA) has lately revised ULIP guidelines for insurers, which will come into effect from September 1, that will force the insurance companies work on lower margins to ensure better returns for policy holders. Insurance companies are fighting the move with their back on the wall raising the bogey that it will lead to massive job contraction, about 20 per cent, for agents and agency managers. The life insurance industry in the private sector, which is now largely ruled by multinational insurance companies, has in its roll about three million agents in addition to some 1,50,000 employees. One would like to know how many of them are regular bank staff and the latter's contribution to the annual premium collection by the industry. Peerless, India's largest private non-banking financial company (NBFC), which had operated for many years in the garb of an insurer tapping huge micro-savings across West Bengal and other parts of the country before a RBI clamp-down banning the company's insurance-like product in the late 1980s, alone boasted an agents' base of 1.5 million. While Peerless adopted the RBI guidelines without much fuss by progressively restructuring the company's businesses, investors in the NBFC today are more secured and, also, better off.

The latest IRDA guidelines certainly make an effort to protect value of the investment of policy holders and ensure a better return. Insurers will have less flexibility in robbing policy holders if the latter surrenders early. The maximum margin allowable to an insurer is only four per cent of the return on investment by policy holder. But, IRDA has not made a direct attempt to break the oligopolistic banker-insurer business alliance and unfair trade practices linked with such alliance. There is no need to shed tears for our insurance companies, including the former state-sector monopoly, LIC of India. LIC has built huge assets by robbing policy holders and investors over many years with extremely low annual “bonuses”, Rs.30 to 40 per thousand, or three to four per cent per annum.. The big things about life insurance were the income-tax deduction facility on the amount of premium paid, subject to a limit, and housing loans. LIC's latest pension policy, Jeevan Akshay VI, an annuity plan, is nothing but a fixed deposit scheme for subscribers up to the age of 79. The monthly return offered is only 7.14 per cent as against the normal return of 8.5 per cent on the government-run pension fund. Unfortunately, IRDA has been traditionally soft on insurance companies, which the authority is supposed to regulate for the benefit of policy holders without compromising on the legitimate rights and business practices of insurers for the industry's healthy growth. (IPA Service)