Chennai: Citibank has come under the scrutiny of the
Insurance Regulatory and Development Authority (IRDA) for foisting
accident insurance cover on its credit card-holders.
The IRDA has summoned Tata AIG Life Insurance Company Ltd and
Royal Sundaram Alliance Insurance Company Ltd to explain why and
how their personal insurance schemes were tied up with Citibank
that is alleged to be charging the credit card-holders the premium
for insurance cover without their consent.
Citibank has been automatically debiting the card-holders’
accounts against the insurance premium.
Citibank offers two kinds of insurance covers - credit shield and
personal accident insurance for its Classic and Gold credit
card-holders. This is in addition to the personal accident
insurance cover offered by the public sector New India Assurance
Company Ltd, Mumbai, for all the Citibank credit card-holders.
Under the credit shield, legal heirs of card-holders need not pay
the card dues in the event of the latter’s death or permanent
disability up to Rs 1 lakh (Classic card-holder) and Rs 2.5 lakh
(Gold card-holder). The premium for Classic card-holder is 0.86
per cent of the month-end outstanding balance and 0.98 per cent
for Gold card-holder. Tata AIG provides this insurance cover.
In addition, a Classic credit card-holder is offered a personal
accident insurance cover (death and permanent total disability) of
Rs 5 lakh and Rs 25 lakh for Gold card-holder for a premium of Rs
14.70 per month and Rs 73.50 per month respectively. Premium
apart, a monthly administrative charge of Rs 15 is also levied on
the card-holder.
The bank makes a song and dance about the low premium rate due to
volume discounts offered by the insurer.
A deeper look at the personal accident insurance cover and the
cost for the credit card-holder and comparing the same with the
normal rates offered by government-owned insurers would reveal how
the Citibank is milking its credit card-holders.
Normally, government-owned insurers charge 45 paise per Rs 1,000
of the sum insured to cover the risks of death and permanent total
disablement due to an accident. So, for Rs 5 lakh value the
premium works out to Rs 225 per annum. This rate is for individual
policies and the government insurers do offer volume discount.
But under the Citibank-Royal Sundaram personal accident insurance
scheme for a Classic card-holder, the insurance cost works out to
Rs 266 per annum (Rs 176 as premium and Rs 90 as administrative
charges - after apportioning the Rs 15 per month administrative
charge equally between credit shield and personal accident
insurance).
What has irked the card-holders is that the bank has been debiting
their account automatically the premium and administrative
charges. Complains an affected card-holder in a chain e-mail: “Irrespective
of the merits of the insurance cover I feel that the scheme is
unethical as I have not given a debit authority to Citibank. I
wonder if Citibank would be happy if I send them some 30 mailers
in a year and in one of them in some innocent corner, say that
unless Citibank gets back to me by the end of this month, all
Citibank properties worldwide are mine.”
Sundaram Finance, one of the promoters of Royal Sundaram, too
offers personal accident insurance to its fixed depositors. This
policy is also from Royal Sundaram but with an 'opt-in' facility
and not like Citibank’s 'opt-out’ scheme.
“This is a very typical American style con job like those
advertisements which come in many American newspapers and
magazines called the Putman style,” says another e-mailer.
Viewed at the backdrop of Citibank signing an MoU with Royal
Sundaram to act as its insurance agent, this practice of automatic
enrollment or 'automatic opt-in’ raises the issue of ethics in
insurance canvassing.
According to a report, Citibank is targeting 5.5 lakh card-holders
under this scheme. It expects around 25 per cent to opt out,
leaving around 4.12 lakh card-holders to be enrolled under the
insurance covers.
Even at a conservative estimate of average collections per
card-holder being Rs 300 per annum (both schemes put together),
Citibank would be mopping up around Rs 12.37 crore per annum. On
this, an insurance commission of 15 per cent works out to Rs 1.8
crore.
One Sankar, who started the chain mail, says: “The scheme is
called Suraksha twin benefit. I wonder who are the two guys
benefiting from it?"
Is Citibank being compensated by Royal Sundaram for roping in more policy holders?
If yes, how? Several attempts to contact Royal Sundaram deputy
managing director Anthony Jacob to get his views came as a
cropper.
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