Need based analysis norm faces flak from insurers

The companies, however, have made representation before regulator to make amendments to this provision

Life insurance companies would not only need to collect basic information, including identity proof, personal details and nominee information, but also the projected income-expenditure of a prospective customer up to the next 30 years.

The Standard Proposal Form guidelines by the Insurance Regulatory and Development Authority (Irda) has recommended that a suitability analysis of each customer is to be done before selling a policy to him/her.

The companies, however, have made a representation before the regulator to make amendments to this provision.

"We have internal procedures in place to ensure that the products sold to a customer are as per their needs. Since we do a need-based analysis before any sale, we feel that such a detailed analytical form is not required," said the chief actuary of  a private life insurance firm.

The companies have requested the insurance regulator to consider the fact that most insurers have mechanisms in place to make sure that every customer is only sold a policy which he/she needs. However, officials added that Irda may not make changes in these norms presently.

In its regulations, gazetted in February, Irda had said that an insurer (or agent/broker) shall make reasonable efforts to obtain a consumers‘ suitability information’ prior to making a recommendation.

"Based on the suitability o f information gathered from the prospect, the Insurer or Agent or Bancassurance or Broker or the insurer’s employees where direct sales are involved, must have reasonable grounds to believe that the product being recommended to the prospect is suitable for him /her," Irda had stated.

Among the items specified for need-based information were projections for up to 30 years for living expenses, education expenses, travel expenses, working span, apart from areas like expected inheritance, desired sum assured among others. Further, the official selling the policy has been asked to give a declaration that the product recommended is suitable for the customer's need.  

Industry officials opined that the customers were not willing to give out such detailed information at the time of purchase. With the change in product guidelines, there have been significant change in product structures. Company executives pointed that with the requirement of such detailed information, it would be difficult to complete a sale in a short period.

"With the availability of several instruments for the purpose of saving and investment, it has become a challenge to sell life insurance. On an average, it takes 20-30% more time to close one sale. Due to further information being sought from Irda on a product's suitability, we fear that product sales could be hampered," said the senior sales officer of a private life insurance firm.

Irda, in these regulations, said that the objective of this norm is ensure that it takes into consideration all relevant questions that are required to understand the need for a particular product and make a recommendation to the prospect bringing in transparency and thereby protecting the prospect's interests. The regulator has sought to implement these norms, to reduce the cases of misselling of a policy to an individual.

According to the Insurance Regulatory and Development Authority (Irda) annual report for 2011-12,  maximum complaints (unfair business practices) in the life insurance sector were related to malpractices and accounted for 34,799 complaints out of 1,00,770 complaints in 2011-12.

Insurance companies also pointed that with a decrease in pass%age for becoming an insurance agent from 50% to 35% could get people who have a lesser knowledge of financial products and instrument.

"It is not fair to expect these new agents to get the customers fill these forms, since several of these questions require complete financial analysis, which neither the agent nor the customer is competent to do," said the chief executive officer of a mid-size private life insurance company.

According to these current regulations, each customer will be required to fill up a seven page proposal form giving complete personal and financial details, enabling a company to make a better recommendation, based on the information provided.