IRDA wants a ban on variable insurance plans (VIPs) through distance marketing. But, why even allow VIPs?

Raj Pradhan

Variable insurance plans (VIPs) can’t be sold by distance marketing anymore, according to the fresh norms by the Insurance Regulatory and Development Authority (IRDA). The idea is to protect the interest of people who buy policies over the phone or the Internet. IRDA’s guidelines on telemarketing of VIPs will be effective 1 October 2011. They lay down that distance marketing, which includes phone calls, SMS and emails, should be done through employees of insurers or brokers, or a specified person of the corporate agent or telemarketers.

IRDA’s objective is to prevent mis-selling, but if the product is flawed due to high charges or complexities, why even allow it? Insurers had already made lucrative profits from universal life policies (ULPs) until they were banned. The new avatar, VIPs, is equally toxic.

Does VIP become better just because it will be sold face-to-face? Can the customer not be fooled by an agent sitting next to him or by a full-page colour advertisement in leading newspapers with no mention of its huge charges? The average investor does not even understand the highest NAV ULIP (net asset value unit-linked insurance plan) and, now, we have products with a combination of lowest NAV entry plus highest NAV (Birla Sun Life Foresight Plan). Can a policyholder figure out how much he will earn? It may not be clear even if the agent sits on your head to explain it.

“Insurance brokers shall not exclusively promote the products of any particular insurer, and shall suggest the best available product in the market that fits the needs of the client,” say the IRDA guidelines. This is actually the role of the broker. What is the need to reiterate their role? It is already delineated in the broker guidelines. The guidelines also require insurance brokers to provide up-to-date price comparison charts of all the available and suitable products under each category.
 
Mahavir Chopra, head, e-business, at Medimanage Insurance Broking Pvt Ltd, says, “There are some grey areas, which we are expecting clarity on; but, overall, the guidelines are good and will help give shape to a full-fledged online/distance marketing insurance industry—online buyers, online insurance companies (general & life), online brokers and online aggregators. Since late 2005, when the online insurance industry was at a nascent stage, the industry is growing at an encouraging pace. The online search statistics and trends (which help garner the online consumer interest) show good growth. The IRDA guidelines give a long overdue direction and provide clarity on how distance sales of insurance should be carried out.”

The question is: Will it add to administrative hassles? “We already had most of the processes in place; this will increase the workload for anyone not having things in place like recording, auditing conversations and so on. It is good from the customer’s viewpoint as distance marketing will have to follow a system set by IRDA. One area that will increase complexities is sharing of the sales pitch script for each product with the compliance officer of the insurer who, in turn, will file it with IRDA,” says Mr Chopra.

Insurers cannot solicit ULIPs by way of telephone calls or voice SMS, wherein annualised non-single premium exceeds Rs50,000 or single-premium policies of more than Rs1 lakh.

According to GV Ramana, vice president (distribution), Star Union Dai-ichi Life Insurance, “These are good guidelines that were missing till now. IRDA may have received complaints related to telemarketing that could have prompted them to bring those guidelines. There will be some order in the business because of the guidelines. We rely on bancassurance and don’t do distance marketing, at present. It may be a small (5%) component for other insurers.

Insurance is not sold like a commodity or a gadget which can be sold over distance marketing. The customer is satisfied with the seller in front of him.”

He adds, “The guidelines could be a little imposing in some cases. The phone call will have to be long (15 to 20 minutes) even if it is a standardised script to talk about charges, features and so on. Companies will need specialised infrastructure and set budgets for it. Some telemarketing companies will find it difficult to survive. The guidelines do not talk about payment (of commission) for distance marketing and, hence, needs clarification.”

Telemarketers are required to preserve the recordings of the conversation with a prospective customer until the policy is transferred to the insurer. The records have to be open to inspection by IRDA.

Tele-callers should ascertain whether customers are interested to continue with the subject. While marketing through an electronic mode, IRDA has asked insurers to obtain the client’s consent before proceeding to the next stage.

(This report was first published in Moneylife magazine, dated 5 May 2011.)