IRDA gets tough with insurance firms

Aug. 16: The insurance regulatory authority has come down heavily on insurance companies for misselling the Unit Linked Insurance Products (ULIP). In another move, just short of black listing Bajaj Allianz and Aviva Life Insurance the regulator has given them 15 days to withdraw their ULIP plans on grounds of being “very complex” for the investors to understand. Mr C.S.Rao, chairman Insurance Regulatory Development Authority told a news channel that broke the story that “there is technically nothing wrong with the schemes but they are complicated and I am going to take action.”
He said a committee had been set up to go into these schemes and they had suggested that they should be withdrawn. Industry sources said that even the most competent professionals had difficulty in understanding these products but it enabled these two companies to make huge profits (Rs 90 crores in the case of Bajaj Allianz) with relatively little investments. The insurance business is capital intensive and has a log gestation period, industry sources said.
Meanwhile the regulator has also got the insurance companies to agree to change their selling style. It is learn’t that the IRDA had told the Life Insurance Council to ask its members to “be more responsible” as it had received innumerable complaints relating to false pictures painted by the companies when selling their products. Mr Rahul Agarwal, CEO of Optima Risk Management Services said insurance companies make more money selling ULIP through investment charges, fund charges and commissions which range from 2 per cent to as much as 40 per cent.
They would illustrate the gains at 36 per cent which was misleading. He welcomed the move of the IRDA. At a meeting of the Life Insurance Council two weeks ago it was decided that companies would now be permitted to illustrate returns of between 8-10 per cent only. The authority has been concerned about policy-holders making uninformed decisions on unit linked insurance products. Concerns also arose on account of various problems such as the risk they bear, ambiguity in respect of nomenclature of charges and disclosures of performance.
Mr Rao, according to industry sources, was looking at the certification process. Under this an agent has to reveal to the customer the details of the product and the customer has to acknowledge that he has fully understood the terms and complexities of this investment decision. All this had to be put down on paper and the customer’s signature had to be taken. This was discussed by the Council and the majority of the companies opposed it saying it was too complicated. They agreed on self regulation and the fact that they could illustrate just 8-10 per cent returns.