Govt asks private insurers to increase free look period to one year

Currently, the free look period offered by insurers is one month

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The government has asked private insurers to increase the free-look period for policyholders from one month to a year, Department of Financial Services (DFS) Secretary M Nagaraju said on Monday.

 

The free-look period is the length of time during which a customer can cancel an insurance policy without paying surrender charges. Last year, the insurance regulator increased the period to 30 days from 15 days.

 

“The government has introduced and encourages insurance companies to increase the look-out (free-look) period of insurance policies to one year from one month. The insurer will refund the first premium paid if the policyholder returns the policy within the period,” Nagaraju said during a post-Budget press conference in Mumbai.

 

Nagaraju said public-sector companies had been asked to introduce ‘call back’ in insurance policies, i.e., once the product is sold, a call back is sent to the customer to understand whether he/she is happy with the product or if they want to surrender. “We have also asked private companies to do the same so that mis-selling is not there,” the secretary said.

 

These are part of the measures taken by the government to reduce the mis-selling of insurance policies in the country. The secretary also said there had been a reduction in the number of complaints.

 

According to the Insurance Regulatory and Development Authority of India’s (Irdai’s) annual report for FY24, grievances reported on unfair business practices against life insurers reduced to 23,335 from 26,107 in FY23, and the share of these to total grievances declined from 21 per cent in FY23 to 19.3 per cent in FY24.

 

“We have also asked banks and financial institutions that only trained agents be able to sell policies. These are the measures we have taken to reduce mis-selling of policies,” Nagaraju said.

 

At the SBI’s Economic Conclave in December 2024, both Finance Minister Nirmala Sitharaman and Irdai Chairman Debasish Panda expressed concerns about mis-selling or forced selling of insurance products via banks and the need to restore customer confidence in the system while urging banks to focus on their core banking services.

 

Commenting on the Insurance Amendment Bill, Nagaraju said internal consultations had been completed for the same, and it would include details regarding investments and the repatriation of profits in case of foreign direct investment (FDI). The composite licence in insurance is also part of the reforms.

 

In her Union Budget speech on February 1, Sitharaman had announced an increase in the FDI limit in the insurance sector to 100 per cent from the existing 74 per cent.

 

“We have almost completed the internal governmental consultations. Then, we will take the next course of action. Along with this, there are also other rules on how the investments will be made and how the profits will be repatriated if there is FDI. That will also be part of the proposed amendment bill, which will be brought to Parliament,” Nagaraju said.

 

“Once it is approved, those rules will also be notified so that all the reforms we intend to do in the insurance sector to improve penetration will be done through these measures…. The composite licence is also part of the reforms the FM has announced,” he added.