What are regulators for?

Mint editor, Monica Halan has been writing consistently on how people in India are being cheated by insurance companies and by banks, which sell their products. Insurance policies generate huge commissions which are taken right at the beginning so customers are sold policies which are unsuitable for their needs. This is with the connivance of regulators. More than half of life insurance policies lapse within 5 years, incurring huge penalties for customers. Companies calculate the retention level of their customers based on the previous year's number and not on the total number, who invested at the beginning, and so are able to hide the lapsation details. Losses to investors run into trillions of rupees. When agents are paid a shocking 25% of the first premium as commission it is obvious that they will concentrate on getting new clients and allowing the old ones to lapse. And so the story of 80 year old, Mr Selvakumar who went to a bank in December 2014 to invest Rs 500,000 in Senior Citizens Savings Scheme. Three bank employees mentally bullied him into buying a unit-linked insurance plan, assuring him of guaranteed 14% returns. He asked the 3 goons if they would sell the same policy to their own father and they looked him in the eye and said, yes. When his next premium became due in December 2015 he discovered that his Rs 500,000 had become Rs 411,000. Naturally, none of the 3 scum could be contacted. And yet the solution is so simple. Just as the law mandates warnings on tobacco products so a warning must be printed in bold red letters at the top of the front page of the form, clearly stating the amount of commission charged and the risks involved. Halan has conducted a study to see how banks mis-sell products. She found that public sector banks sold fixed deposits no matter what was asked for while private sector banks sold insurance products. At least fixed deposits are safe, in that you do not lose your capital, even if returns are not high, but losses could be very high in insurance products. Why because a lot of these products are tied to mutual funds which invest in the stock market. Time after time retail investors have been burned in the share markets because our markets are highly manipulated. Not one person has ever been convicted of insider trading or front running or other ways of cheating. Yet the regulator wants retail investors to buy into stocks. Foreign investors held Rs 18 trillion in stocks of Indian companies in December. The figure has gone up as the market is at all time high. We can expect sharp falls if US interest rate goes up. No one to protect Indian citizens. Some people must be gaining.