At the recently held CII Insurance Summit, industry leaders blatantly exposed the issue of mis-selli
If you are a policy holder of a life or non-life insurance product, chances are that your policy needs have not correctly been met. The agent who so sweetly and subtly coerced you into signing that policy, has most probably, unknowingly or otherwise, sold you the wrong product. Mis-selling of policies is going on for a while but has assumed greater proportions as of late. This was the subject of intense discussion at a recent insurance summit organised by the Confederation of Indian Industry. Said T R Ramchandran, CEO and MD of Aviva Life Insurance Company, “The rising instances of mis-selling across insurance categories are worrying. This is primarily because of financial illiteracy of advising agents.” Concurs Nitish Asthana, Senior VP, Direct Distribution and Telcassurance, Bharti AXA Life Insurance, “Financial literacy in the distribution channel itself is the main cause of mis-selling. It leads to underinsurance and improper coverage for the insured. The problem lies in a lack of training on part of the employer for need-based policy selling.” He further added that inactivity of agents is another cause for concern. He said, “There are three million agents in the market currently. But only 20% of these are productive.”
Is there a way to curb this menace? According to Sanjiv Bajaj, joint MD, Bajaj Capital, the proposed 2.25% cap on insurer’s premium charges will help arrest mis-selling. He said, “We can’t control mis-selling by doing micro things. We have to do macro things like having a 2.25% cap on premium charges, which will make a lot of difference.” He attributed mis-selling to a lack of long-term relationship orientation with the customer. “Mis-selling is happening more at the employee level and not the agency level, as is the misunderstanding. This can only happen when there is one thing missing in the relationship, and that is relationship. If there is emphasis on having a relationship, then mis-selling cannot happen as the advising agent wants to thrive on the life-time value of the relationship.” – Sanket Dhanorkar[email protected]
Paresh Parasnis, executive director at HDFC Standard Life attributed the continuing losses to inadequate risk management and insufficient capital. He explained, “What happened over the past few years was the result of inadequate focus on risk management. Going forward, insurers have to look at capturing all possible risks and dynamically managing these risks. They must ensure they have enough capital to back the kind of risks they are taking on their books.” He also highlighted the absence of an efficient long-term debt market as a hindrance to the growth of this sector. He said, “The fact that we have more than Rs700,000 crore of invested money in debt instruments and the fact that we don’t have a long-term debt market is an obvious problem for the insurance industry. We are writing contracts which are for 20/30 years duration, but at the same time investing in near term securities.”
Mayank Bathwal, CFO, Birla Sunlife Insurance, put the blame of high costs on the agency model of insurance. He explained that the high cost of commissions paid to agents was cutting into insurers’ profitability. He added, “Other than the variable component of commissions, there is a huge fixed cost component paid to management level executives that is affecting the sector as they continue earning high salary despite low business procurement.” He proposed a variable model to this category to improve efficiency.
Meanwhile, the regulator, IRDA, is considering major regulatory changes. First on its radar is introduction of disclosure norms for insurers to bring in greater transparency. IRDA chairman, J Hari Narayan said, “We are concerned about the disclosures of insurers, and should be able to come out with disclosure norms by the end of this month.”
The regulator is also mulling over guidelines for firms valuing insurance companies, which would bring greater clarity to valuations of insurers planning to come up with IPOs in the future. Mr Narayan said, “We are in discussion with SEBI to frame the IPO guidelines for insurers.” Some changes are also sought to be introduced in the bancassurance model. Another significant policy change is the proposed capping of premium charges.
Apart from these, the new Direct Tax Code (DTC) is also set to change the scenario in insurance. One aspect of the new DTC proposes to remove the tax benefit on insurance premium on certain policies. This is giving sleepless nights to insurers as it will significantly affect the policy off-take with consumers preferring to shift to other savings instruments providing tax relief. Said Paresh Parasnis, “The fact that tax benefit will be available only for small number of policies will bring a large part of the current market outside this area. Customers who were buying insurance policies purely for tax benefit will rethink their preferences. This will force insurers to redesign products and find ways to provide good value to customers.” – Sanket Dhanorkar [email protected]