Refrain from miss-selling: Chidambaram to insurance firms

 

Concerned about the subdued growth in the insurance sector, Finance Minister P Chidambaram on Monday asked insurance companies to refrain from miss-selling and devise simple products.

 

“In my view, the reasons why insurance is stumbling in India are miss-selling of products and complex products. If you want to sell insurance in India, you must sell simple products and make it absolutely clear to agents and other officers they should not miss-sell,” Chidambaram said.

According to the Insurance Regulatory and Development Authority (Irda)’s annual report for 2011-12, the highest number of complaints on unfair business practices in the life insurance sector was related to malpractices.

Of the 1,00,770 complaints, these accounted for 34,799.

In the non-life sector, in 2011-12, the highest number of complaints was policy-related (38,076 of the 93,155 complaints).

Chidambaram said India was one of most under-insured countries, with penetration of less than four per cent of gross domestic product. “I think if you keep these two guidelines — simple products and no miss-selling — insurance would see a great rise in the next few years,” he said, adding insurance companies should bring out products people understood. He said while demand and the spread of banking services were extremely fast-paced, the demand for insurance products and the growth of insurance companies were tepid.

“Since the Indian insurance sector was opened to private participation, India has reported an increase in insurance density (ratio of per capita premium to population) for every subsequent year. For the first time, it reported a fall in 2011,” Irda said in its annual report. This was primarily because after the September 2010 unit-linked policy regulations, the life insurance sector had recorded a slowdown in premium growth. In 2011, insurance density fell to $49 (about Rs 2,695) from $55.7 (about Rs 3,063) in 2010.

Till 2009, insurance penetration, or the ratio of premium (in dollars) to gross domestic product (in dollars), surged consistently. It stood at 5.1 per cent in 2010 and 4.1 per cent in 2011. The fall was attributed to slower growth in life insurance premiums, compared to growth of the economy.