Are Irdai’s rules enough for consumers?
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I wrote about the removal of key consumer rights by the insurance regulator in my previous column. You can read it here: bit.ly/2njjAI1. Insurance Regulatory and Development Authority (Irdai) responded with a letter. In the interest of fairness, I’m using key arguments of the letter here and putting the rest online at: bit.ly/2nAhs2H. I will also respond to Irdai’s letter.
“We draw your attention to the article on the above subject written by Ms Monika Halan, published in your newspaper as well as website on 29.03.2017 (copy enclosed). We believe that the article has highlighted several issues which do not present a true and fair understanding of the issues at hand and could mislead the readers. We would therefore like to place on record our response to the article to set the record straight in respect of issues raised concerning consumer protection in connection with Draft Insurance Regulatory and Development Authority of lndia (Protection of Policyholders’ Interests) Regulations, 2017 (‘the draft regulations’ hereafter).
1. The Indian insurance industry was opened up to private participation with the enactment of the Insurance Regulatory and Development Authority Act, 1999. Post liberalization, the number of participants in the insurance industry has gone up from six insurers (including Life Insurance Corporation of India, four offices of foreign reinsurers). Though the number of insurance companies operating in India has increased significantly, hundreds of millions of people have limited awareness about benefits of insurance protection and/or access to insurance services. India as a country still faces the challenge of ‘under-insurance’ in terms of insurance penetration and density. To address the challenge, it is imperative for IRDAI to maintain delicate balance between the growth and sustainability of insurance business with focus on protection of interests of the policyholders as the central point. The draft regulations attempt the same. The said draft has been developed after extensive consultations with various stakeholders of the insurance industry. The 2014 and 2017 exposure drafts are attempts towards amending the existing regulations, keeping the above objective in mind. Changes to some of the provisions are made to improve objectivity. The draft regulations also require that there is proper information flow to the prospect/policyholder at the point of sale and point of service in order to address any issues of mis-selling. In terms of Section 42 of Insurance Act, 1938, the insurers are now responsible of all acts and omissions of its agents.
2. It is also to be understood that the Protection of Policyholders’ Interests Regulations are not an end in itself. All the regulations made by the Authority keep this objective as the centre point. Hence the draft regulations are not in derogation but in addition to all other regulations made by the Authority which, inter alia, provide for the protection of policyholders’ interests. Therefore, the issues which have already been taken care of in other regulations need not be reiterated in the draft regulations.
.......(skip to point 5)
5. .....It is also apt to mention here that all insurers are within the jurisdiction of consumer fora in terms of Consumer Protection Act, 1986. All the rights referred in the news article are the rights which are already granted to the consumers of services through the Consumer Protection Act, l986. The government has also put in place grievance redressal portals such as CPGRAMS, DARPG and PIMO portal, consumer councils, and dedicated consumer affairs departments in various government organisations and establishment of the institution of Insurance Ombudsman. Therefore, the statement of the article which mentions that the various finance ministers had turned a blind eye to all evidence that points to deep rot in the insurance sector is factually incorrect.”
My response to Irdai. First, thank you for finally speaking to Mint Money. We had begun to fear that because we ask tough questions, the regulator does not speak to us at all. Second, why would a regulator remove articulated consumer rights from a fresh draft when they existed in an earlier draft? I still have not understood that. Third, life insurance products are long-term contracts. Irdai must answer why the industry it regulates shows 5th year persistency at less than 44%. See this link for firm level persistency rates: bit.ly/1SA4TZo. Given that rules allow insurers to deduct large chunks of premiums in traditional plans, which cover over 80% of the market, in the first few years as costs, investors either get nothing or tiny amounts of their hard-earned savings back. This is destruction of household savings. Fourth, Irdai should make public the number of policies that complete their maturity term (minus death claims). If the 5th year persistency is less than 44%, I wonder what the 10th or 15th or 20th year persistency will look like. Given the high cost of surrender to policyholder, this is destruction of household savings. Fifth, why did Irdai lower the consumer-friendly persistency target rules in 2014? Read this article to know why it matters: bit.ly/2pjY4nc. Sixth, what is the average annual, post cost, return that policyholders have got over the past 10, 15, 20 years in a traditional plan?
If we are talking of consumer protection, these questions are relevant.
Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint, consultant NIPFP, and on the board of FPSB India. She can be reached at email@example.com