No policy without clients' form: Irda

Most policies attached to co-branded cards to lure customers.

The Insurance Regulatory and Development Authority (Irda) has warned insurers not to issue policies without receiving the requisite proposal forms from customers as stipulated under Section 4 of the Irda Act 9 (Proposal for Insurance).

"Any violation of this provision by an insurer shall be viewed seriously by the authority and action as deemed fit, (will be) taken," said the regulator in a communication received by insurance company CEOs on Monday.

Irda said it has received several complaints that policies were being issued without collecting proposal forms from customers. The regulator further pointed out that "the number of complaints of policies being issued without the consent of policyholders, either through telemarketing or banking channels, especially through credit cards, is on the rise".

Credit card companies are now being watched closely since co-branded credit cards offered by leading banks come with either life, accident or health insurance schemes to lure in first-time card holders. Premiums towards these policies are deducted directly from the customer's credit card.

In this process, there is no verification or proposal form filled in by the insured person; the only form which the customer fills out is a credit card application. Customers feel that in the absence of relevant documentation they are exposed to exploitation by the insurers.

It may be recalled that couple of years ago, the regulator pulled up Citibank and two general insurers "" Tata AIG and Royal Sundaram "" for foisting accident insurance covers on credit card-holders.

Irda has summoned insurers to explain why and how their personal insurance schemes are being tied up with credit card companies.

It is alleged that credit card companies have been charging the card-holders the premium for insurance cover without their consent, and automatically debiting card-holder accounts against the insurance premia.

How card firms milk customers

S Srikanth, a Chennai-based software engineer, bought a credit card from Citibank, which came with personal accident insurance, which he didn't opt for. What irked Srikanth was that the bank was debiting the premium and administrative charges from his account automatically.

"Just because they give a customer a credit card does not mean that they own the customer and resort to such tactics. It is a dangerous notion for financial institutions to harbour," Srikanth says. "Irrespective of the merits of the insurance cover, I feel that the scheme is unethical as I have not given debiting authority in writing to Citibank."

An industry expert gives an example of a credit card company offering five lakh cards with accident cover. At a conservative estimate of average collection per card-holder being Rs 300 per annum, the credit card company would mop up around Rs 12.37 crore per annum. On this, an insurance commission of 15 per cent works out to Rs 1.8 crore.

If you own a credit card, chances are that you were probably asked by the company if you would like to slap on some credit insurance. In most cases, gullible customers are unfamiliar with this type of insurance and accept it, especially if tax benefits under sections 80 C or 10(D) are offered.

Actuarial sources note that credit insurance is beneficial to the credit card company since it can be used to pay off debt when a credit card holder dies. Thus, the final beneficiary of the customer's insurance policy is the credit card company itself, they add.