Home / Opinion / Why Belgian and Dutch organ donation data are so different

The past month has seen an escalation in insurance pitches. Personal calls, emails and SMSes have gone up as have questions received from readers and viewers and on Twitter. The pitch is simple: Life Insurance Corp. of India (LIC) will stop selling its best selling products from 1 October, so invest now, before 30 September to lock in the policy now. Part two of the pitch is that LIC will begin to levy service tax on its products from October 1, so buy now. Mint’s Deepti Bhaskaran reported on 17 September (read the story here: http://bit.ly/15ziMCe) that the pitches have nuggets of truth on which a false façade of a cynical sales pitch has been constructed. The truth is that an 18 February circular by the Insurance Regulatory and Development Authority (Irda) directed life insurance companies to re-haul traditional plans (unit linked plans, or Ulips, have investments going into stocks and give market-linked returns; traditional plans give a basic guaranteed return. Um, yes, there is a little kernel of insurance in both products) so that they are less unfair for investors. Ulips were re-hauled in September 2010 causing the industry to manufacture and sell traditional policies that still carry very heavy costs of commission that go all the way to 40% of the first premium.

What you need to know is this: traditional plans will get better from 1 October. What you hear is this: buy now! Don’t wait for 30 September! These wonderful best-selling plans will no longer be available from 1 October. The insurance regulator and the government of India should worry. Its gazette notification masthead is being used in a brazen mis-selling exercise by insurance agents across the country. But then financial sector regulators in India have been in denial about their role as protectors of consumer of financial products and services in India. Their chief worry remains firm failure and systemic risk—the base level of worry for a modern financial regulator. This attitude will need a big change once the Financial Sector Legislative Reforms Commission (FSLRC) report’s recommended Indian Financial Code becomes reality; the report puts consumer protection at the heart of the financial system. (Read a good summary here: http://bit.ly/188ekJf).

The implementation time may not be that far away as it seems that there is a move to action the report in bits so that the non-contentious parts, where there is no dissent, can be brought in. There is a big leap ahead in the mind-sets of the current regulators for this consumer-first regulatory approach to actually play out. One suggestion as the system gears up for re-haul is to use lessons from behavioural finance in financial sector regulation. A good example is to look at the work being done in the UK and see how the reconstitution of the regulator Financial Services Authority (FSA) to the Financial Conduct Authority (FCA) has put consumer wellbeing at the heart of running businesses in the financial sector. The vision of the FCA is: “to make markets work well so consumers get a fair deal." This is easier said than done. The financial sector is ahead of regulators the world over and nobody has been able to solve the problems of information asymmetry and sharp sales of financial products. It is possible that we’ve all looked at the problem from the wrong side. Check box regulation—where a firm is supposed to do a certain number of things before it is certified complaint—has not worked. Taking note of this problem, Martin Wheatley spoke about using lessons from behavioural economics in the financial sector regulation in one of his first speeches as CEO of the FCA. You can read the speech here: http://bit.ly/1142Ra2. The FCA is using insights and results from this stream of economics to understand consumer and behaviour better and then try and use the learning in regulation of the financial sector. But is behavioural econ applicable in real world situations or is it just results of how grad American students react to class room experiments that we’re taking so seriously. Well, consider this. Organ donation rates in Belgium are at 98%. Its neighbour, the Netherlands does just 28% on this voluntary gesture to leave your organs for others to use should you die suddenly. The Netherlands got this number of 28% after a very heavy advertising campaign, with millions spent on publicity, public outreach and a soap opera to make people sensitive to donating organs. What did Belgium do? Nothing. The only difference in the two countries was their choice architecture, or the manner in which choices are presented. One of the key insights of behavioural econ is that people hate to take decisions. They prefer status quo. So if a box is to be ticked, and it involves a decision, they will leave it un-ticked. (You can read the academic paper here that shows the data and research: http://bit.ly/caoevo ).

Belgium has a form that a citizen needs to tick if it wants to be taken off the organ donation programme. The Netherlands has a form that citizens need to tick if they want to be on the programme. The results are similar across Europe. Countries that have opt-out as a choice do much better than those that have opt-in as a choice. Denmark, the UK and Germany have organ donation rates of 4%, 17% and 12% each. Austria, France, Hungry, Poland and Portugal have organ donation rates of 100%. The first lot has an opt-in as the choice and the second lot has opt-out as the choice. Maybe we should look at some of these lessons to embed into regulation as we begin the process of re-hauling the financial sector.

Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, Yale World Fellow 2011 and on the board of FPSB India. She can be reached at expenseaccount@livemint.com

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