To demystify insurance products and fill the information gap, the Insurance Regulatory & Development Authority (Irda) has suggested to insurers that they use easy-to-follow language.
Emphasising the need to ensure the required information is digested by policyholders, Irda said insurers should keep key feature documents in mind while coming up with new breeds of products such as unit-linked insurance plans (Ulips).
“Spurred by competition triggered by this opportunity, the market has seen a plethora of new products. This has raised new concerns regarding availability of information to prospects and policyholders,” Irda said.
It said the ultimate test of a policy document was whether the target customer understood the product’s main features and was able to take an informed decision.
Poor understanding of the product is the main reason for higher mis-selling. The general complaint against Ulips is that policyholders do not know whether the product is a single-premium or a regular-premium product. Since agents who explain these products sell all regular premium products as single-premium to earn commissions, the buyer becomes a victim of mis-selling and the policy lapses.
Irda said the policy document should be able to capture the purpose of the product and the risks involved. Further, it should not be very long or loose, should be attractive and available in local languages. Also, insurers should avoid jargon, it said.
Insurers have been asked to respond with suggestions by June 20.
To ensure further transparency, the regulator said the products should be simple at the time of sale and promotion, so that the buyer felt confident that complete information had been provided regarding the product.
Insurers have also been asked to take care of policyholders while drafting contractual documents. “Legal documents are complex and not comprehensible to the insured. It is observed that insurance policy documents are long and run into several pages, making it almost impossible for policyholders to read them,” said Irda.
The regulator said even the educated population did not understand complex legal language and, therefore, providing product information in simple language was crucial.
Going forward, insurers would be asked to bring out key feature documents in a simple language for various products. This document will have the same legal sanction as a comprehensive policy document.
