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Why Mis-selling is ruining industries

In Uncategorized on September 5, 2020 at 5:28 am
Misselling in health insurance and how to avoid being a victim - Turtlemint

Few days back, I have visited a public-sector and a private sector bank in Delhi. Surprisingly, when I get off my vehicle towards the bank, bank sales executives rushed towards me. Initially, I was too exhilarated with joy to observe executives’ excitement to serve the customer, but my happiness could not last long. They were not interested in offering any banking service to me. Instead, they found a new prey to sell insurance policies. Wittingly, they told me the new misleading rule of the bank that I can’t avail of any featured services of banks until I take an investment policy from them.

My initial conception was that bancassurance is a win-win situation for both banks and insurance companies as it is adding a revenue stream for banks in terms of incentives, while insurance companies has added a new channel of sales. My new experience was an eye-opener. I discussed it with few of my friends, they also faced the similar situation. I realized that it is the time when banks are going to book heavy losses. Whether realised or not, if banks will not focus on selling banking service to a customer and mis-sell insurance or investment products, they are doing some harm to themselves and doing permanent damage to the insurance industry. What motivated banks to pay more incentives to sell insurance policies than selling their own FDs and other services.

Another surprise to me is the institutionalization of bad practices. It is not the case of some banks, rather many others. Slowly and gradually, these malpractices become the norm of society, though unethical ones. I believe that the wrong incentivisation policy hurt the Indian banking industry. The driving force is the level of commission payments offered to sales staff for volume selling. The challenge lies in providing the right product in the right market. If I need COVID-19 policy, instead, I am being offered ULIP policies. Bank agents do not bother to explore customer needs. In addition, they force customers to buy something else, which is perhaps not needed. I am still intrigued to explore why mis-selling is not considered cheating/fraud when a customer is duped into gaining high incentives by an agent. Misrepresentation of facts is also common in mis-selling.

In laymen’s terms, mis-selling is generally observed when bank employees fail to act in the client’s best interest, provide inappropriate or wrong advice, fail to consider customer needs and circumstances to buy the policy, and mainly engage in low-risk profiling of customer. Selling of insurance policies should be ‘fair, clear, and non-misleading.’ In the financial industry, mis-selling has disastrous consequences. Every year, worldwide regulators fine numerous companies due to mis-selling. Some of the research found evidence that regulators’ fines and penalties make more damage (ten times) to the reputation of the company than actual financial loss.

Mis-selling is a result of the failure of risk governance at multiple levels. At the operational level, the sales executives have no concerns about the adverse implications of their actions on the company’s overall reputation, brand, and financial health. They think about their short-term incentives. In fact, in the current situation, following acceptable practices will lead to non-achievement of the sales target, resulting in job loss later for them.

Four years back, I had a brainstorming with the Chief Human Resource Officer (CHO) of the company about reasons for employee turnover. He told me that at that point, the company employed around 14000 employees, out of which 4000 are at the senior and middle level. The employee turnover per year for the rest 10,000 employees is 100%. That means that no employee is staying in the company for more than a year at the bottom of the pyramid. Think of what kind of value training will generate in this scenario.

At the strategic level, where is the oversight for these sales agreements? How is senior management ensuring that sales managers are taking care of due processes during sales? Where is the initiative to build customer trust? How executives follow ethical practices in marketing?

At the collective level, insurance companies and banks are considered to employ risk experts, underwriters, actuaries, and Chief Risk Officers. The adverse impact of bancassurance on banks and insurance companies was not evaluated yet despite expertise and capabilities.  

Cognition is essential to control mis-selling. Risk savvy workforce is needed to tackle the problem at the moment. Sales people should be given the opportunity to work for a shorter duration in risk management, claims management, and other departments on a rotation basis to understand different perspectives to sales. I have observed this trend in Germany. Agents should be taught the subject of mis-selling and relevant case studies to understand the long-term consequences of their actions.

Overall, the Insurance company’s sales policies need serious transformation at large.

The research argued that “the risk of mis-selling is particularly acute when the firm hires the same agents to both prospects for new customers and provide product advice.” The firms’ internal standards are in question for selling policies and advising customers. If steeper incentives are offered for sales representatives’ benefits, instead of customer benefits in the state of low regulatory fines, the mis-selling will persist longer.


Inderst, R., & Ottaviani, M. (2009). Misselling through agents. American Economic Review99(3), 883-908.

The Future of Health Risk at Workplace

In Uncategorized on March 20, 2020 at 11:23 am

The people-centric workplace is known for its good profits and higher growth. In contrast, many organisations favor progress of corporate scorecard inattentive to its impact on employee health scorecard. What is the future of health risk at workplace? Let’s understand this by some examples.

Hilton (USA) has been ranked at the number one workplace in Fortune 100 Best Companies to work for 2019. Hospitality at its core, Hilton offers one of the best guest services due to its unique team members. The company is a firm believer in investing in employees and team development for its best services. Clearly, Hilton is not in the business of social services; the differentiating factor is its unique strategy to serve customers. In 2019, Hilton generated approximately 9.5 billion dollars in revenue, significantly up from the last year (8.91 billion US dollars). The power of word of mouth for friendly staff and safe working environment worked wonders for the company. Words spread automatically by people, whether it is about employment conditions or customer service. Indirect benefits for low expenditure in advertising and enhanced brand building are, in general, not accounted in any balancesheet. This is all about creating an eco-system for higher performance of employees, but what about the wellbeing of employees.

workplace safety

Two years back, the impressive statement of Ex-Chairman of Sundaram Fasteners (part of the $7.2 billion TVS group) at annual conference of Entrepreneur Café at Chennai made a mark: an organisation is growing when its employees are growing along with corporate success. For example, buying a new house, education of children, their certification, and promotion. To sum up, employee associates their wellbeing with the company’s prosperity like a family. The value of an organisation should be imbibed in employee’s day to day life.

A few years back, when I was studying at University of Edinburgh Business School for my Ph.D, I came to know the concept of green footprints of business school. On average, students were used to walking more than 5 miles per day which is a far distant aim for students in India. They are working day and night to secure good marks and placement. Same is happening at corporate level. I observe very rarely attention is paid to student green footprints or employee footprints. Issues related to Cardiac arrest, blood sugar, obesity, and depression are at an all-time high. Recently, I have visited a few academic institutions and found many professors and senior executives are dying suddenly due to cardiac arrest and cancer, leaving all personal and corporate responsibilities in the lurch. That gives me an idea about the possibility of linking a healthier workplace and healthier lifestyle with a corporate scorecard in the future?

A recent attempt was the development of Worksite Health ScoreCard by CDC to establish benchmarks and track improvements (evaluation) over time. The aim was to assist employers and business coalitions to create healthier workplaces. Simultaneously, state or local health departments also can use the tool for monitoring worksite practices and track improvements in worksite health promotion programs over time to more effectively direct resources to support employers.

This idea can be utilised for not only to fulfill work and safety regulation, creating a better eco-system, but also for discounting insurance premiums and for preventive healthcare by state and national health insurance bodies such as Modicare in India or Medicare in the US. Though low cost, high access, data aggregation are an added advantage of this new approach, however, there could be some concerns related to the privacy of employees and misuse of data by companies. Nowadays, many companies are offering free health check-ups, dispensaries, along with medical insurance to their employees as a part of facilities in overall salary.

Nonetheless, issues in healthcare at the holistic level are still in silos. Health authorities at the state and national level are clueless, how to improvise quality of healthcare, increase access, reduce cost with an overall aim to improve health and wellbeing of society.

Imagine a different situation, when employers and states are no more able to handle the rising healthcare cost burden anymore. Insurance companies are also over-burdened and forced to charge so hefty premium that it may become unaffordable for the large population. What are the possibilities to deal with such kind of risk? Another situation, if a state knows that 75% of healthcare cost is due to preventable chronic conditions such as heart disease, cancer, stroke, chronic obstructive pulmonary disease (bronchitis, emphysema), and diabetes, what actions they should do?

Our corporate actions have great social impacts. Personal health is closely linked with Corporate HealthCard. Similarly, global Pandemics like COVID-19 present a live example about how social health risk is linked with our personal health risk. Management of health risk is essential for business. Good physical, mental, corporate and social health would be a performance driver in the future.


Loeppke, R., Edington, D. W., & Bég, S. (2010). Impact of the prevention plan on employee health risk reduction. Population health management13(5), 275-284.

Investment in a start-up is not a child’s play

In fraud, General, Risk, Uncategorized on September 24, 2019 at 3:25 am

80% -90% of Start-up businesses fail in the first few years of operations. Given this data, investment in a start-up is not a child’s play. Being a Ph.D. in risk management and having studied large institutions where the failure rate is far lesser, I was always intrigued about how angel investors calculate the risk of start-ups to make an investment decision. At the same time, it would be equally difficult for start-ups to convince the investors for their potential and ability to perform.

Recently I visited the University of Southampton for my research and met an interesting lady who was an angel investor with enormous funds to invest particularly in Ghana. My questions became specific as I heard the word ‘Ghana’. Why an angel investor wants to invest in Ghana only? What motivates her to take such a decision. Very soon, the lady revealed the reasons: one by one setting a story. She taught me investment risk in a unique way, which I cannot forget lifetime.

The lady had seven children, five dogs and two visiting foxes living with her in a beautiful house at London along with her husband, who was a medical practitioner. She said, “if you are a mom/dad, it is easy to understand what an investment in a start-up means. Consider your child as your angel investment and marriage of child as an exit for the investment. Investment in Ghana was not a new idea as for a parent from Ghana just wanted the child alike”.

Similar to a promoter-based company, when you invest in your child, it is full of optimism while if it is for others (start-ups), many times, investors are not that optimistic. The concerns are raised about principal risk, return risk, valuation risk, and many others. A company may not fail to deliver the promised product or fail. The returns will be variable in frequency, time, and amount. The main difference between the two situations is about trust why people tend to trust their own child than others.

Most often, start-up makes a mistake in demonstrating why investors can trust them and those who can demonstrate, most often receive the investment. To maintain that trust, they are required to answer some what if questions of angel investors which deals with risk management.

What is new about start-up: is it a product or a service? What is the start-up target market for the product? What if you don’t find a market for your product?

How will you make your product/service profitable? Show your business plan. What are the business objectives? What if you will face issues related to higher expenses, delays in projects, labor problems, license issues, stiff competition, and testing of the product.

What if you require funds over its existing cash resources to develop market capabilities?

How is management planning to execute the business for viability and success? What if you find that management is not enough experienced and expert in dealing with it?

 How you will manage fraud, and what are the controls? What if you find that the company’s management team is involved in fraud?

Further, I met another start-up business CEO who received large funding from angel investor by just showing how he can prepare the best British tea. Angel investor asked the start-up CEO how you will address the need of the British being Indian? He argued that he knows British culture, and taste better than British and can offer a British Tea. If he likes it, he will give him funding, if not, it’s okay. Eventually, he got the funding.

Investment in start-ups requires a fair understanding of the risk management and particularly two major aspects: how to develop trust and ability to answer what if questions. Remember, trust is developed first for the team; the product comes next. It is well said,

The first-rate team with a second-rate idea will always outperform a second-rate team with a first-rate idea.”
― Brian Cohen