The purpose and intent of regulatory authorities has shifted in customers’ interest
A bank gave loan to a customer, and along with it sold an insurance plan to cover the loan for which premium was payable for two years. The Bank had the option to sell a single premium insurance plan to the customer, which was cost effective for the customer, instead the Bank sold the two payment term plan as it earns more commission from the insurance company as compared to single-premium product.
Subsequently, the regulator directed the insurance company to refund the excess commission paid on this product, amounting to few hundred of crores, to all the insured members from the shareholders funds. The insurer has filed an appeal against the order of the regulator and the final outcome is pending.
In another instance, a consumer forum held the insurance company is liable to pay death claim of one of the co-borrowers of loan, even though he was not covered as a life assured. As the loan document was signed by both co-borrowers, the consumer forum directed the insurer should have itself inquired and should have covered both the borrowers under the insurance policy.
The banking regulator in the recent past introduced the concept of zero liability of the bank consumers if the electronic transactions are made due to fraud or involves negligence or deficiency on the bank’s part.
The above instances highlight the need to fairly treat customers, an approach adopted and recognised by regulators and judiciary within India and across the world. Treating customers fairly (TCF) is not a phrase which is new!
Regulators around the world, especially post 2008 financial crisis, have become more suspicious, less flexible and have levied punitive damages on various financial organisations that have carried out their businesses in a manner contrarian to the beneficial outcomes for its customers. Banks and other financial institutions have paid more than $150 billion in fines, settlements, and restitutions to the homeowners and investors since the 2008 financial crisis.
In the Indian context, there has been a visible shift in the purpose and intent of various Indian regulatory authorities that have shown a strong bias towards acting in the interests of the “customers” and putting customers’ interests in forefront in all facets of business.
The consumer foras also generally provide judgments/ benefit of doubt to the consumers in ambiguous situations. National Commission considered a "mosquito bite" as an accident for paying a claim on death of a customer who was covered for death due to accident. An accident is something that happens unexpectedly and is not planned and that a mosquito bite is something which happens all of a sudden without any act of omission on part of the victim, the National Commission said.
It goes without saying that being trustworthy and customer-centric has become the prerequisites for establishing a “Brand”. The concept is seen by companies as the ‘differentiator’ between a satiate and WOW creator.
The adoption of TCF does involve complete change of organisation culture and re-engineering of various processes from sales to all customer facing processes. Following are the key areas of focus in order to achieve desired outcomes of TCF:
a) Sales and marketing material – Using easy and simple promotional material; all charges stated clearly defined, jargons used, if any, are fully explained. b) Advice and sales process – selling a product as per the needs of customer. c) Fact finding and information sharing including complete disclosure of any fees and charges to a customer to ensure product suitability. d) Complaint Handling and Resolution –Dedicated complaint handling department; shortest resolution time within regulatory prescribed timelines, regular monitoring, recording and analysis of complaints with due reporting to management. e) Staff training to create TCF awareness and drive pro-customer behaviour - the regular product training to sellers so that they can offer products suitable, duly assessed, affordable from customer standpoint at the time of sale. f)Remuneration / incentives practices – ensuring that there are elements of staff remuneration in an organisation related to TCF and prescribed service standards encouraging TCF. The organisation needs to regularly monitor and enhance above control mechanisms within organisations.
The buck does not stop here, not only the organisations, even the endorsers and celebrities will be under the radar for engaging in misleading advertisements.
Still, lots of work needs to be done in this field. The organisations are yet to completely realise how even one consumer if disgruntled, can impact the reputation and question the intent of the organisation which claims to treat its customers fairly.
As most products in financial services are getting standardised, the key differentiator remains customer services. It can become competitive advantages for the organisation which follows TCF concepts from the start of the customer journey to all touch points in this journey.
CONGENIAL NORMS
- The purpose and intent of regulatory authorities has shifted in customers’ interest
- Being customer-centric has become the prerequisites for establishing a “brand”
The writer is chief compliance officer, Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited
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