The insurance regulator is determined to make agents graduate into “advisors” and is coming up with a detailed guideline that would make sale of a life insurance policy “need” or “suitability” based.
The stated intention is that it will not be a call of policy holders alone when it comes to choosing an insurance product. Rather it will depend on the profile of the policyholder, recommended by the agents.
The guidelines come with examples for ease of understanding. Here is a sample. “Rajan (name changed) is 28 years old, single, earning Rs 6 lakh per annum. He is supporting his parents financially and will also have to take care of his sister’s marriage. This means Rajan has tremendous financial responsibility and his demise will be a big blow to the family. So, for the financial safety of his family he needs life cover. The ideal product in this case would be a term assurance plan.”
|NEED TO KNOW! * Need-based analysis made mandatory * Agents to recommend products based on the need and suitability of the customer * Proposal-cum-needs analysis form to be filled up by customers * Customer will have to file a declaration, if he/she decides to buy a product that is not recommended * Guidelines will be effective from April 1|
Or, if Rajan is married and plans to buy a house after 10 years, for which he would require Rs 20 lakh at that time.
The suitable product for him would be a regular premium unit-linked insurance policy (Ulip) with some mortality cover.
The underlying purpose of these guidelines is to ensure an agent can't just push a product where the commission is higher. In other words, need-based selling will be made mandatory ,wherein insurers will have to go for “fact-finding” before selling the products. The policy recommendation would be guided by criteria such as age, risk profile, financial situation, investment objectives and investment experience, Irda said.
After closing the sale, an agent or a broker will have to certify that the product recommended was suitable for the customer and based on the information submitted by him/her. Similarly, the customer will have to file a declaration, if he/she purchases a product that is not based on the recommendation of the insurer or the agent.
“It is important and necessary for insurers to have in place a suitability index (or a prospect product matrix) that can serve as a self governing tool to assess the quality of sale,” said J Hari Narayan, chairman.
According to the guidelines, which will come into effect from April 2012, insurers and agents will have to adopt a standard ‘Proposal-cum-needs analysis form’ prescribed by Irda.
Insurers, while welcoming the step, said the fact-find form or the need analysis form should not be standardised and should be kept separate from the proposal form.
“A need-based selling concept is an internationally followed best practice. Hence, it is a welcome step. However, companies should have some flexibility on the format on need-based analysis, as norms followed by a sales force varies across companies. Also, the proposal form should come in place only after identifying the need and the solution for a customer. Hence, both the forms should be separate,” said Vijay Sinha, senior vice-president, marketing, at Tata AIG Life.