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Out of 9,656 insurance-related complaints registered in FY11, 2,301 complaints were related to sales, according to data records of the Insurance Regulatory and Development Authority’s (Irda) grievance cell. The data drums home a truth the insurers and the regulator were oblivious of for a very long time: mis-selling is still rampant.

Illustration by Shyamal Banerjee; graphic by Sandeep Bhatnagar/Mint

Irda has proposed that a standard proposal-cum-need analysis form should accompany the sales process. The form aims to ensure that the agent is equipped with all the knowledge necessary to recommend an insurance policy according to the needs of the customer. Also, the forms would help document sales practices and that could help contain mis-selling.

Says Vijay Sinha, senior vice-president and head (marketing), Tata AIG Life Insurance Co. Ltd: “If you look at relatively mature economies, there are various degrees of regulations governing sales processes. In India, sales is not regulated. So this is indeed a positive step to ensure there is need-based selling, which is essential for life insurance."

In that sense, the draft forms can be seen as the first chapter on agent regulation. However, you (the policyholder) have an important role to play too. Even as agents will become accountable and with every sales process getting documented will have little room to push commission-heavy products, there is still a huge scope to mis-sell if you don’t get involved.

The proposal

According to the draft guidelines, an agent will have to obtain the consumer’s suitability information before recommending a policy through the proposed seven-page proposal-cum-need analysis form.

At present, a proposal form essentially seeks basic information: personal details, financial details, health details and other details, such as the nominee and a list of all the insurance policies you have. It is to be filled after you have decided to buy an insurance policy.

The proposed form would seek the same details, only it would be more elaborate and will need to be filled up before any policy is recommended. So you would also have to fill out details of your income, projected future income, number of dependants, nature of work, and assets and liabilities and so on. The idea is to gauge the suitability of a customer to a policy.

Mixing the proposal form and fact finding has not gone down well with the insurers. Says Sinha: “Need-based selling is welcome but it is not a good idea to mix the proposal form and the fact finding form. A proposal form basically seeks insurance-related details from the client and is two steps after fact finding and policy recommendation. By mixing the two, the whole process can become very tedious."

Nevertheless, if you are serious about buying the right policy and are not driven by tax-saving motives, fill out the proposal form yourself. A proposal form is also a legal document, so concealment or fudging of critical information can be seen as breach of contract and the insurer can refuse honouring a claim.

The next step is the need analysis form. The form will document your needs—whether you are looking for protection, savings or health cover. Then on the basis of your current and projected living expenses, the agent will help you arrive at a suitable cover. On the basis of your risk appetite and time horizon, the agent will recommend products.

To aid recommendation, the insurer will also have to structure a product matrix that will indicate the suitability of the product. The product matrix will indicate products on the basis of life stage, generic need and income segment of the customer. So a single person with fewer dependants will need goal-based savings products and health cover more than pure protection products. So the matrix will indicate 100% suitability of products intended for goal-based savings and health cover. The insurer will then spell out products tailor-made for this purpose. However, for a married person all three goals—protection, goal-based saving and health—will be 100% suitable.

What it means for you?

The effort is definitely laudable and if implemented properly will ensure you buy the right policy for the right purpose over the right time horizon. But the efforts can come to naught if you are irresponsible. You will need to fight the most common temptation of letting your agent fill up the form and would need to fill each and every detail yourself.

Says Suresh Agarwal, executive vice-president and head (distribution and strategic initiatives), Kotak Life Insurance Co. Ltd: “The idea is to go beyond the proposal form and analyse the needs of the customer. Even as it is a step ahead, it is important that the customers are equally involved in the buying process. It is also for the customers to evolve and take part in the process to ensure they are not mis-sold a plan."

The draft proposal can be seen at www.irda.gov.in and is open for public comments till 29 February. Even as the regulator is finally waking up to the needs of customers, you need to be just as involved in the process.


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