IRDAI has come out with norms for insurance advertisement. While the changes will help improve transparency, ‘buyers beware’ will still apply in insurance buying
The Insurance Regulatory and Development Authority of India (IRDAI) has issued fresh norms on insurance advertisements to protect the interests of the insuring public, enhance their level of confidence on the nature of sales material used and encourage fair business practices. As it is very difficult for the public to understand and evaluate the intricacies involved in the various insurance products, it is of paramount importance that the publicity material is relevant, fair and transparent enabling informed decision making about whether or not to buy a specific insurance product. Here are some of the points in the new circular on insurance advertisements and what IRDAI can do beyond just advertisement regulations.
1. It has asked companies to ensure that communications are clear, fair and not misleading, whatever be the mode of communication. Insurers have been directed to use material and design (including paper size, color, font type and font size, tone and volume) to present the information legibly and in an accessible manner.
2. Where any insurance advertisement highlights the benefit of 'guarantees', a clear disclosure of the underlying conditions under which the guarantee operates must be made, wherever applicable. In all such cases, all the conditions (including cost of guarantee, charges) under which the guarantee operates need a prominent mention. If the underlying conditions are very elaborate, the text/wording on guarantee must be accompanied by the phrase “Conditions Apply” in a font that is at least 50% of the font used to highlight the guarantee.
Note: Insurers sell non-participating traditional products which have pre-defined returns with no bonus component. IRDAI should make the insurers specify the product returns in brochure and policy document as it can be easily calculated. Most of these products give returns of 4%-5% pa, but the buyer is not aware of it as the insurers do not specify it anywhere. IRDAI needs to enforce this transparency.
3. In respect of Unit Linked Life Insurance Products (ULIPs) the actual asset mix of various underlying funds vis-à-vis the asset composition of approved asset pattern has to be placed on the web portal of respective life insurance companies at least on a half yearly basis.
4. “Some companies have products with 0% or 100% (or more) allocation charges under ULIP products. These two situations are special in nature and hence in either case additional information is required in the undertaking to be given by the policyholder to avoid any confusion,” IRDAI said. In the case of products having 0% allocation, the benefit illustration should carry a declaration in capital and bold letters. "I ALSO UNDERSTAND THAT NO PART OF MY FIRST YEAR PREMIUM WILL BE INVESTED IN UNIT LINKED INVESTMENT FUNDS".
Note: Such toxic ULIP or ULP (Universal Life Plan) were sold in the past. ULIPs sold before September 2010 and ULPs were axed by IRDAI. If IRDAI believes that some insurer is still selling these toxic products then they need to take action instead of making just disclosures in product advertisement. It is not an advertisement issue, but a matter of grave concern, if such products are still there in the market.
5. On phone calls, IRDAI said promotional activities through cold-calls shall be preferably by a licensed intermediary. In case it is done by other than licensed intermediary, responsibility of compliance with advertisement regulations and the related circulars/guidelines vests with the insurer/intermediary that has outsourced this activity.
Note: Fraud selling over the phone is a serious issue. In most cases, the calls are from unlicensed entities, who pass on the leads to valid intermediaries to close the sale. IRDAI should make the insurers responsible not just for compliance with advertisement regulations but also by levying penalties for fraud selling of policies via cold-calls.
6. The advertisements should not: Highlight the potential benefits of an insurance contract without giving a fair indication of the risks. Draw attention to favourable tax treatment without stating that they are subject to changes in the tax laws.
7. “The brand names of insurance products must not use terms or phrases that convey a fabricated sense of security,” IRDAI said. Advertisements should ensure that: Any expression of opinion of the insurer is a fair and honest representation. Any statement of fact, promise or projection discloses all the relevant assumptions; and indicates in a clear and prominent way significant limitations/criteria on which any special offers are available.
8. Any claim of rating/award should be based only on those declared by entities which are independent of the insurers and its affiliates. Insurers and its affiliates should not however, procure services from such independent entities so as to get a rating/award. Source of such rating/award is to be disclosed conspicuously and legibly in such advertisements. No claim of ranking by Insurer, as regards its position in the insurance market, based on any criteria (like premium income or number of policies or branches or claims settlements etc.,) is permissible in any of the advertisements.