Mis-selling in life plans: IRDA Regulator’s Report Hints At Curbs On Traditional Schemes

Mumbai: The insurance regulator has said that life companies have shifted to mis-selling conventional policies after curbs were placed on unit-linked plans.
The comments by the Insurance Regulatory and Development Authority in its latest annual report released last weekend are seen as an indication of possible curbs on conventional or traditional policies. Unlike Ulips where the policyholder can choose the asset class to invest in (equity or debt), in conventional policies an insurer has to park funds largely in debt in keeping with guidelines.
Two years ago, IRDA slashed charges on Ulips and asked companies to ensure that policyholders got most of their money back even if they exit prematurely. The curbs on Ulips meant that insurers had to cut commission they paid to agents, making it less attractive for distributors even though they are much more customer friendly now. These curbs on charges are not yet applicable on traditional plans, which provide a higher incentive to distributors.
“A drill down into the category of ‘Unfair Business Practices’ for the year 2011-12 shows that mis-selling is predominant in the conventional policies category as against Ulips, which was the case earlier. The regulatory interventions by IRDA on Ulips have brought down the percentage of complaints pertaining to this category, reflecting an improvement in the conduct of business in this area,” IRDA said in its annual report.
IRDA’s conclusion on the prevalence of mis-selling is based on its analysis of investor grievances. “The initiative of IRDA in implementing the Integrated Grievance Management System (IGMS) has created a central repository of industry complaints, which lends itself to various types of analyses relating to conduct of business by insurers. An analysis of the data in IGMS for the year 2011-12 shows that in the life insurance area, complaints relating to mis-selling, or ‘Unfair Business Practices’ as the category is called in the system, is predominant. Prior to this, the category ‘Policy Bond Not Received’ was the predominant reason for complaint,” IRDA said.
According to the regulator, its prescription of a ‘prospect product matrix’ will determine suitability of products based on needs analysis and will reduce mis-selling.

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