Reaching out

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SummaryTo curb mis-selling and increase penetration of insurance in semi-urban and rural areas, the Insurance Regulatory and Development Authority has come out with a report on insurance sub-broking.

Irda’s latest report on sub-brokers aims not only at increasing the presence of insurance in rural areas, but also curbing mis-selling

To curb mis-selling and increase penetration of insurance in semi-urban and rural areas, the Insurance Regulatory and Development Authority (Irda) has come out with a report on insurance sub-broking. Among other things, it has recommended 50 hours of training, covering topics like risk, perils and hazards, classification of risks, indemnity, classification of insurance and policy terms and conditions. The National Insurance Academy will be the examination body for sub-brokers and the examination will be held online.

For practical training purpose, a sub-broker will have to go through 20 hours of internal training under the broker to whom he has registered an application to function as such. The broker will bear the responsibility of certification and confirmation, apart from training the sub-broker on functioning of internal systems.

The report says that brokers with a certain degree of consistency and scale of revenues, geographical presence and Irda-licensed broking workforce can appoint sub-brokers. If the sub-broker places premium of more than R10 crore for two financial years, he has to upgrade his status as a broker and cannot continue as a sub-broker. The sub-broker can place business worth R1 lakh per policy and this threshold limit applies for both life and non-life businesses. The report says that the available infrastructure of Common Services Centres in the rural areas may be utilised for procuring insurance through subbroking model. Also, the licensing system should be made simple and the main broker, after conducting necessary due diligence, will forward the application for sub-broking to the Irda and the authority will register them as sub-broker.

The report was prepared by a committee constituted by Irda last year, which was headed by P C James, professor of National Insurance Academy. The committee has recommended that sub-brokers maybe allowed to sell micro-insurance and combo products, which will cater to the needs of rural people. If the sub-broker is terminated for any reason, the main broker will be responsible for servicing the policies sold by the sub-broker

The intermediaries who represent insurers are tied agents, corporate agents, banks and micro insurance agents. Since 2010 the insurance regulator has notified distance marketing guidelines, web aggregators' guidelines and modified referral guidelines, which aim to help insurers increase the spread.

The regulator has underlined that no significant steps have been taken to further strengthen the channel of insurance broking, even though insurance brokers are the representatives of the customers.

“It is a fact that there have been reports about mis-selling of insurance products, both in life insurance and general insurance. The complaints on misselling from customers have increased over the years,” says the Irda report on insurance sub-broking.

The committee has recommended that brokers who have completed at least one full financial year can sponsor a sub-broker. It has also clarified that part of a financial year will not be considered while checking the eligibility to sponsor. The degree of consistency in performance, scale of revenues and geographical presence could decide the eligibility of a main broker to appoint a sub-broker. The Irda's decision will be final and the regulator could use its discretion to allow a broker on a case-to-case basis.

“At present, brokers are operating mostly from big cities. It is desirable that we increase the penetration of insurance in semi-urban and rural areas. Sub-broking is one model which can help increase penetration and spread of insurance,” underlines the report. Companies must ensure that their employees and persons who solicit insurance business are competent professionals and adhere to the code of conduct prescribed.

They will have to educate the client on all necessary details of insurance products they seek to solicit and make him aware about his rights and duties. The price quoted will be strictly as per the terms from the insurer and that cannot add any additional pricing to the policy.

The sub-broker will have to make clear communication to the client about the inception of the insurance cover and acceptance of the proposal by the insurer and no endorsement or midterm variations to the policy wording will be arranged without the specific requests or mandate of the client.

Analysts say the recommendation made by the committee will help reduce misselling, which has become rampant in the life insurance industry over the past few years. Irda had highlighted the widespread mis-selling in life insurance products in its 2011-12 annual report. The regulator's analysis shows that mis-selling or unfair business practices jumped from 7.6% in 2009-10 of the total customer complaints in life insurance industry in 2009-10 to 32% in 2011-12. Such a steep rise in mis-selling is predominant in conventional policies after curbs were placed on unit-linked plans in 2010.

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