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Journalism of Courage
More than a year after introducing sweeping changes in the structure of unit-linked insurance plans (Ulips),the Insurance Regulatory and Development Authority (Irda) has come up with fresh guidelines for distance marketing for selling high-value Ulips over the phone.
The regulator has made it clear that insurers will not solicit for Ulips with multiple premiums with annualised premiums exceeding R50,000 over telephone or through SMS.
Insurers cannot solicit single-premium products of more than R1 lakh over the phone and no variable insurance products can be solicited or sold over any distance-marketing mode. The guidelines will come into force from October 1.
Analysts say the regulator’s new set of guidelines are aimed at protecting the interests of policyholders as there is a lot of ambiguity over rules on soliciting insurance products using various distance-marketing tools. Under the new norms,distance-marketing would include every activity of solicitation (including generation of leads of potential customers) and sale of insurance through calls,SMS,email,direct postal mail,newspaper and magazine inserts and interactive direct-to-home television.
The guidelines say telemarketer will have to preserve recording of all calls made to customers and will have to be open to inspection by the authority. Moreover,if the telemarketing company is a corporate entity,it has to employ specified persons who are employees of the insurance company or are authorised verifiers permitted for soliciting and finalising the sale of insurance products through long-distance mode.
Insurance companies typically take the help of telemarketing companies to generate leads and to solicit products like Ulips,which is still mostly sold through the agency model. Over 80% of insurance products are sold through distributors and Ulips accounted for around 60% of the total insurance policies currently sold in the country.
For insurance brokers,the regulator has underlined that they should not exclusively promote the products of any particular insurer and will have to suggest the best available product in the market that fits the needs of the customers. The price charts put up by brokers will have to be updated regularly and reflect the true picture of all the available and suitable products under each category. The regulator has also specified that insurers shall not pay the brokers any remuneration other than brokerage. Insurers shall specifically identify the proposals procured by brokers over distance mode and obtain all relevant records pertaining to such policies. Insurers shall produce such records before Irda in case of dispute involving alleged violation of breach of conduct by the broker, the new guidelines say.
To make Ulips more investor-friendly for those looking for an investment avenue with an insurance component linked to it,the insurance regulator from September 1 last year extended the lock-in period from three years to five,made a minimum guarantee of 4.5% returns on pension plans and mandated a tenfold increase in the minimum risk cover of insurance products. Buyers of Ulips now pay lower charges for the same premium they paid earlier and any top-up on insurance premiums will be treated as a single premium,which means that every top-up that one makes will have an additional insurance cover backing it as well.
Moreover,the regulator has increased the minimum sum assured in the case of Ulips with a regular premium payment option to 10 times the annualised premium from five times at present. In other words,an increase in sum assured means a larger amount of the premium will be deducted towards mortality charges,and this will lower the allocation of premium to the investment fund and will further reduce distributors’ commissions.
Clearly,the impact of these changes are good for investors as it brings the focus on protection and the long-term nature of the product. In fact,before the September 1 norms,Ulips were sold as short-term investment products with an insurance veil and taxation benefits. After the new norms on Ulips came into force,new data show that the product is fast losing its market share. Insurance companies have seen a 15% drop in Ulips business during 2010-11.
However,experts say that it is still better to buy term insurance and mutual fund separately. Analysing some new Ulips,insurance companies are levying 5-7% as entry charges in addition to term insurance rates and are,therefore,unattractive. They are also responding wrongly by pushing traditional insurance products with high costs and low returns, says Sanjiv Mehta,founder of financedoctor.in. He explains that all financial goals have two main themes,of protection and returns. Term insurance is the only pure protection product,while other insurance products are a combination of insurance or protection and investment or returns, he says.
Analysts say insurance companies will have to come clean on the various charges on Ulips like the premium allocation charge,policy administration charges,mortality charges,fund management fees,guarantee charges and switching charges. Unless these charges are explained upfront,customers will not find Ulips attractive and will instead switch to traditional policies, says Ramen Saighal,an insurance broker.
