Disappointed that our suggestions on strengthening policyholder protection framework were not considered, says insurance brokers’ association chief | Simply Save

Also read: IRDAI’s status quo on surrender charges a relief for insurers, but setback for policyholders

Now, life insurance companies are understandably content with the outcome as they had opposed the higher surrender value provisions. But this is a setback for policyholders who often have to surrender policies due to their unsuitability, having been mis-sold these policies or if they find out that they are unable to pay premiums over the long-term. Put simply, they will continue to incur higher losses.

Likewise, the Insurance Brokers Association of India (IBAI) is also disappointed that many of its suggestions on strengthening the policyholder protection regulations were not taken on board, though it is hopeful that they will be incorporated in master circulars to be issued in future.

Also read: IRDAI’s higher surrender-value proposal is good for policyholders, but a double-edged sword

Moneycontrol spoke to Sumit Bohra, President, IBAI to understand IBAI’s stance on the new policyholder protection rules. Here are the key takeaways from the interaction:

- We are obviously disappointed that our suggestions on making policyholder protection regulations more robust were not taken on board

- However, there is this concept of master circulars that IRDAI comes out with. Since most regulations finalised now are principle-based, we still hope that the master circulars issued in future will capture our suggestions.

- For one, we felt the definition of ‘grievance’ specified in the regulations to be inadequate. It was too generic – instead, we need regulations with more teeth. Timelines should have been specified along with penalties for insurers who fail to adhere to the timeframe to resolve grievances.

- Individual policyholders are essentially laypersons who do not understand insurance jargon. So our contention was that intermediaries like brokers should be allowed to represent customers at grievance redressal forums.

- We had also raised an objection against the use of the word ‘knowingly’ in the definition of ‘mis-selling’. A mis-sale is just that, whether it was done knowingly or not should not make any difference. No distributor will admit that he did it knowingly, though most of the times, that is indeed the case.

- Policyholder education is key to tackling mis-selling. It is important to set the right expectations. For example, in non-linked, secure return plans such as endowment policies, it is important to make them aware that the returns (IRR or internal rate of return) will not be more than 6.5-7 percent. So, if someone were to promise returns of 10 percent, it is a red flag.

- Policyholders staying put throughout the policy tenure is in the interests of insurers, intermediaries and insured. However, the desire to make (quick) money and short-sightedness often results in mis-selling.

- Therefore, trail-based commission model is much better than paying out upfront commissions to distributors. As an intermediary, if I have a longer period of commission receipts, I will make sure policy runs for a long-term period of time. This will curb mis-selling (as agents are likely to sell policies that suit policyholders’ needs and also, the incentive to churn policies comes down).