Here is a conundrum. On the one hand, plenty of investors and consumers of banking services, airlines, telecom operators and insurance are posting angry complaints on social media to expose the most outrageous callousness. Yet, official claims from various regulators suggest that we operate in a perfect system where over 90% of all grievances are redressed through official channels.
Moneylife receives regular complaints from those struggling to redress simple grievances—these include once powerful retired bureaucrats. SD Israni’s columns list examples of insurance policyholders across segments being dragged all the way to the National Consumer Redress Commission or the Supreme Court for sums running into a few lakh rupees. It is quite likely that the legal fees paid by insurers in such cases would be higher than the money claimed. An independent insurance regulator was supposed to fix this. But check the facts. In December 2017, 16 out of 17 posts of insurance ombudsman (IO) were vacant; in January 2018, the last one at Noida also retired. IO offices are asking consumers to approach consumer courts which are already over-burdened. The IOs were set up expressly to provide fast grievance redress without a cost to the consumer and their decisions were binding on companies. While IOs are not appointed, the Reserve Bank of India (RBI) has, under pressure from consumers, included the mis-selling of insurance by banks, under the purview of the banking ombudsman (BO). And, yet, if you go by the IRDAI’s (Insurance Regulatory Disputes Authority of India) statistics, things couldn’t be better.
Consider the official spin (on policyholder.gov.in). It says, data put out by IRDAI shows a whopping 40% drop in the number of complaints against life insurance products and the pending complaints at the end of March 2017 were a mere 247. The general insurance segment reportedly showed an 11% drop in complaints. Technology is claimed to have speeded up processes and every insurance company, we are told, has set up fantastic complaint-handling systems. By this account, IRDAI may actually shut down IO offices!
If this beautiful picture were actually true, would someone explain why RBI has been forced to include insurance mis-selling under the BO scheme? Or why are consumers approaching the police to complain against egregious cases of mis-selling? In fact, social media has become a more effective grievance redress channel, since it has the potential to inflict reputational damage with complaints going viral and sharing of other negative experiences.
That the BO will now look at mis-selling of insurance is cold comfort for victims of mis-selling. The performance of BO is shockingly inadequate. In FY16-17, 20 BO offices across the country received over 119,758 complaints, but a pathetic 24 cases (0.02%) actually led to an award. This was given a glowing spin and reported by a leading economic paper as “92 per cent were disposed within the year.” It took a Right to Information (RTI) application to reveal that over 50% of the complaints were rejected as non-maintainable, that too, under non-appealable sections. A blogpost has exposed how the rejection of complaints without appeal was under specific instructions of RBI’s customer services department.
A third regulator that gets a glowing report for complaints redress is SEBI. An academic study (“Effectiveness of SEBI’s Complaints Redress System in India” by D Ajit, Sarat Malik, Sneha Nautiyal) on SEBI’s complaint redress system (SCORES) in
2014-15 calls it an ‘advocacy model’ that is “overzealous in accepting customer complaints.” Its redressal rate, at 96%, is one of the highest among regulators worldwide, despite fielding the largest number of complaints. In fact, the study cautions against the ‘overtly inclusiveness’ of SCORES creating ‘hard-to-solve’ cases with “weak information set which can adversely impact the reputation of the regulator.”
SCORES considers a complaint resolved when it is passed on to companies/intermediaries. This is effective, since companies have to report pending complaints to the board and, in the past, have been penalised for failure to redress and not given permission to make follow-on public issues, etc, until all grievances were closed. Similarly, there are two layers of redress when it comes to intermediaries—stock exchanges have been charged with providing arbitration opportunities to resolve broker-related disputes. Competition in the mutual fund industry also ensures better treatment of customers.
However, none of this tells the real story of the totality of complaints. Rarely, if ever, have customers who are cheated, got their money back—a fact that is not captured by studies. The largest complaints are about collective investment schemes and there is no clear record or resolution in sight for any of these cases. And, yet, if we go by official records, our regulators are doing brilliantly and, since the finance ministry is unconcerned about engaging with people, one cannot expect any better.