Policy holders need safeguards in new life insurance norms: Experts
The insurance regulator has to put in various safeguards for the policy holder while changing rules to comply with the government's recent decisions on life insurance, industry experts say.
The Insurance Regulatory and Development Authority (IRDA) has also to see that the Reserve Bank of India (RBI) permit banks to become insurance brokers. The RBI has allowed banks to act only as corporate agents or referral partners.
Finance Minister P. Chidambaram Monday announced a slew of measures to help the life insurance sector. The measures include introduction of Use and File system of launching new policies by life insurers in the place of File and Use for standard policies and allowing banks to act as brokers rather than as agents and others.
Under the present File and Use system, insurance companies can sell the product only after getting approval from the insurance regulator.
Chidambaram said in a country with low spread and penetration of life insurance, the objective should be to sell simple and easily understood products. Such products would automatically be deemed to have been approved after 15 days of its intimation to the IRDA unless it found non-compliance within that period, he added.
"Use and file for simple products looks fine. But from policy holders' protection viewpoint some safeguards are required. If on scrutiny or complaints, any product is found defective, IRDA should explicitly provide for the right to recall with proviso for premium refund and payment of intervening claims," K.K. Srinivasan, a former IRDA member, told IANS.
In June this year, IRDA fined HDFC Standard Life Insurance Company, a joint venture between HDFC and Britain's Standard Life, Rs.1.05 crore for rejecting several death claims under a policy condition that was asked to be scrapped by the regulator way back in 2003.
"Unless the chairman and members of IRDA take continuous and personal interest in the product approval system there cannot be any real improvement," R. Ramakrishnan, member of the Malhotra Committee on Insurance Reforms, told IANS.
One of the common complaints against the IRDA is the long time it takes in approving new products and the lack of uniformity in approving products. Some companies get the nod to launch a product while others do not get the sanction to introduce similar policies.
Asking IRDA to consider notifying banks as insurance brokers and not as corporate agents, Chidambaram said as a broker the bank may sell the products of more than one insurer providing an intended policyholder a choice of products to choose from and also prevent mis-selling.
Srinivasan wondered how IRDA can unilaterally convert banks into brokers. "Banks are corporate agents because they voluntarily applied for corporate agency licence and got their licences. They cannot unilaterally be 'notified' as brokers now. They have to apply for broker's licence and obtain it," he said.
"There are also some points of law here. Agents represent insurance companies. Their acts and omissions are those of the insurance companies. Brokers are independent. They legally represent the customer and are liable for wrong professional advice given. Will banks be willing and be permitted by RBI to take on this liability?".
V. Manickam, secretary general of the Life Insurance Council of India (LICI), told IANS that the IRDA will take up the issue with RBI to implement the measures announced by the finance minister.
Ramakrishnan said allowing banks to act as brokers for more than one life insurance company has been in vogue in Britain for almost three decades. "When many of the major banks (like SBI, ICICI and others) have their own life insurance companies, in what way this relaxation will help the insurance industry?," he wondered.
On the suggestion of compensating the master policy holder in respect of group insurance, he said it needed to be implemented immediately.