Online insurance: IRDA cracks the whip  

May 16, 2011

Can consumers get higher accuracy with online portals

Moneylife Digital Team

There are many websites through  which you can compare, click and buy insurance. Aggregator sites do offer the convenience of comparison without having to deal with the high pressure sales tactics of agents. Rupeetalk.com, policybazaar.com, myinsuranceclub.com and apnapaisa.com are some of the Web aggregators that help you compare and buy insurance online.

But as a Moneylife ‘Cover Story’ (30 December 2010) found, aggregator sites on financial products have severe limitations. We found problems with the quality of information as well as sharing of visitor contact information with several insurers/agents and, in some cases, with unrelated entities. These channels had remained out of the regulatory purview until now. The Insurance Regulatory and Development Authority (IRDA) has now released draft guidelines for such online portals. The guidelines call for more stringent due diligence in terms of quality of information. The highlights (and the possible lacunae) of the draft guidelines are:

•    Registration with IRDA: IRDA will grant approval for a period of three years. The insurance regulator may also inspect the premises of the Web aggregator to supervise its activities, inspect its books and check its records. However, this activity might just increase red tape.

•    Minimum Net Worth: The aggregator should have a minimum net worth of not less than Rs50 lakh (at any time) during the previous three consecutive years. But start-ups might have a problem with this pre-condition due to their having to hold unreasonably high amounts of assets minus liabilities.

•    Limits on Passing on the Leads: If the client evinces interest in buying insurance but does not select an insurer, the lead may be transmitted to no more than five insurers in the same class of insurance business. Or this lead can be passed on to a single broker. But the same lead cannot be shared with five insurers and a single broker.

•    Payment Terms: Payments can be made to aggregators only when leads actually result in the sale of a policy. IRDA is forcing the industry to shift from a ‘cost-per-lead’ model to a ‘cost-per-sale’ model. Will it work in reality? It requires a lot more interaction between the aggregator and the insurer (or broker) to confirm the sale of a policy based on the lead generated by the aggregator. And, of course, the subsequent pass-back of insurance commission—based on a policy sale—to the aggregator will be a tricky and cumbersome process.