Marketing and selling of insurance products

LIBERALISATION OF the insurance industry will only make sense if the customer gains. Hence the needs of customers have to be addressed and products have to be designed to meet the requirements of customers and not the insurers. In order to provide a `solution' to the customer's requirements, financial advice would be necessary. Finally delivery and service should match international standards.

A number of the new entrants have engaged market research agencies to identify customer groups who will need to be targeted, innovative products to be introduced and finally the distribution channels. Typically, in India so far, the individual agent has been the main channel for selling insurance products. But now additional channels including brokers, banks, corporate agents and the Internet will be used by insurance companies in order to reach the customer. Both the law and the regulator will have to take into account new developments in distribution channels so that the customer gains.

Limitation of expenditure on commission

Section 40A Clause 1 of the Insurance Act has not been changed. This states that in the case of life insurance business, an insurance agent can be paid commission, where the policy grants an immediate annuity or a deferred annuity in consideration of a single premium, or where only one premium is payable on the policy, not exceeding two per cent of that premium, where the policy grants a deferred annuity in consideration of more than one premium, seven and a half per cent of the first year's premium, and two per cent of each renewal premium, payable on the policy, and in any other case, 35 per cent of the first year's premium, seven and a half per cent of the second and third year's renewal premium, and thereafter five per cent of each renewal premium, payable on the policy; provided that in a case referred to in clause (c), an insurer, during the first ten years of his business, may pay to an insurance agent, and an insurance agent may receive from such insurer, 40 per cent of the first year's premium payable on the policy.

Further, in terms of Sec. 40A clause 3 (amended), an insurance agent can receive commission in the case of non-life policy an amount not exceeding 15 per cent of the premium payable on the policy, where the policy relates to fire or marine insurance or miscellaneous insurance.

Limitation of expenses of management: Sections 40B and 40C cover limitation of expenses of management for life and general insurance companies respectively. The IRDA will prescribe the upper limits.

Licensing of insurance agents: Sec. 42 provides that the IRDA, or an officer authorised by it, shall issue a licence to any person to act as an insurance agent for the purpose of soliciting or procuring insurance business. The agent can be an individual, firm or company. The licence will be renewable every three years. The agent in order to be appointed is required to possess the requisite qualifications, practical training and pass such examinations as required by IRDA. The fee payable shall not exceed Rs. 250.

Issue of licence to intermediary or insurance intermediary: Sec. 42D provides that IRDA or an officer authorised by IRDA shall, subject to regulations, issue licences to intermediaries or insurance intermediaries. The licences will be valid for three years and renewable thereafter.

Insurance advertisements and disclosure regulations: The IRDA has issued detailed guidelines in order to ensure that the consumers are not solicited or sold policies by either the insurance companies or their intermediaries in a wrongful manner. Insurers and intermediaries need to have compliance officers in order to establish and maintain a system of control over the content, form and method of dissemination of all advertisements concerning policy issuance. Specimens of all advertisements are to be maintained for a minimum period of three years and a copy of each advertisement is expected to be filed with the IRDA.

The IRDA has laid down that every insurer shall follow recognised standards of professional conduct as prescribed by the Advertisement Standards Council of India (ASCI) and discharge its functions in the interest of the policy holders. The authority is expected to come down heavily on insurers and intermediaries who indulge in unfair or misleading advertisements.

Appointment of Actuaries: The Actuarial Society of India, established in 1944, has presently some 150 fellows, while there are more than 500 student members. The Actuarial Society of India conducts examinations which are comparable to the examinations of the Institute of Actuaries in London. After nationalisation, with LIC becoming the only player in the life insurance market, the demand for actuaries declined. In 1971 the Payment of Gratuity Act created a demand for some actuaries while the introduction of pension funds in a selective manner has further increased the demand. Now with the insurance market opening up, the demand for actuaries is expected to shoot up.

The IRDA has come out with detailed guidelines regarding the role of the `Appointed Actuary' in insurance ventures. The eligibility of a person to be appointed as appointed actuary for an insurer, will include: The person should be ordinarily resident in India; a Fellow Member of the Actuarial Society of India; an employee of the life insurer, in case of life insurance business; an employee of the insurer or a consulting actuary, in case of general insurance business; a person who possesses a Certificate of Practice issued by the Actuarial Society of India; and not over the age of seventy years.

Licensing of surveyors and loss assessors: Sec. 64UM lists the powers of the IRDA to issue licences as well as the qualifications required by surveyors and loss assessors.

After nationalisation of the insurance sector, growth in insurance premium has been commendable. However, if we compare insurance in India to the penetration levels achieved in many other countries, we realise that there is scope for both deeper and wider insurance coverage across various consumer classes. Insurance liberalisation will also benefit the economy as a whole in a number of areas. For example, an open insurance market will aid the financing of infrastructure related and other long gestation projects by aiding the development of the debt market. Entry of life insurance players is also expected to increase social security among the masses by increasing pension coverage.

The insurance industry will witness rapid changes in the coming years with the entry of new players, the changing face of technology and the development of distribution channels which will enable various financial services to be delivered to the customer at reduced cost. Globally, mergers are taking place as financial supermarkets are being formed, and financial service providers who are unable to adapt to the new developments will fall by the way side. The same developments will take place in India and the first signs are already visible. The task of the insurance regulator is onerous under these circumstances. The new players also have the responsibility to see that the insurance market becomes competitive and the Indian customer welcomes the emerging scenario.

Abhijit Roy

(Concluded)

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