From Insurance Worker September 2013
FFF(For our Field Force)
LIC Agents do Right Selling!
A Harvard Business School study, “Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market” tried to show that LIC's Agents (only) are doing mis-selling.
The main accusation is, LIC Agents are not recommending term assurance products. The low and medium income households (blindly) trust LIC and because of that trust, they are misled by LIC's agents to endowment plans. According to the study endowment plans are costly. If one is able to plan insurance and investment/savings separately, then it may be true. But, it is not possible for the “worst educated consumer” or “low and medium income households”, whom the study concern about.
According to a report from Espirito Santo Securities, term insurance policies have the highest lapsation rate in India. “People want returns from their insurance policies and see term insurance as a waste of premium,” said the report titled ‘Life insurance thematic: Let’s not give up on life yet’. So, if LIC Agents are not recommending term plans, they are selling what people want.
If it is such a big crime to recommend endowment plans, all the private insurers should not sell them. Are they prepared for it? In India, nobody can sell insurance without savings component. It is LIC's success to provide proper mixture of insurance and savings in plans for decades, which are still able to compete with investment instruments in returns.
The inability of the private players to break the market domination of LIC even after 14 years (life term in India!), makes them to lament like this, calling themselves it a “study”! Whatever it may, the phrase “commission driven sales behavior”, used to describe about LIC Agents must be strongly condemned!
The study actually accept that it is unable to find much difference with private agents. But, at the same time it tries to create an illusion that LIC's agents (only) are doing mis-selling. The news and other items in media and web are also purposefully trying to magnify the illusion.
According to Irda’s Annual Report 2011-12, the highest number of complaints in life insurance related to mis-selling. RBI noted (in the Financial Stability Report) that, they mainly pertained to the private sector, though LIC leads the business with a 70 per cent share. These statements clearly expose the motive of the “study”!
IRDA now allowed Banks to act as insurance brokers. Until now banks are working as corporate agent for one insurance company each in Life and General. The new guidelines allow them to sell the products of all companies. IRDA argues that banks' relationship with the customer is fiduciary (a legal relationship of trust and confidence between two parties) and hence it is not fair for banks to act as agent for a particular company and giving no choice to their customers.
Actually this move is not to support the customers. The late entrants of insurance field are having no bank left to get a tie up and they were asking repeatedly to allow banks to sell products of more than one company.
But, RBI's financial stability report cautioned about mis-selling of insurance products by banks. It observed banks did not have a clear segregation of duties of marketing personnel from other branch functions, and bank employees were directly receiving incentives from third parties such as insurance companies for selling their products. It said that the direct incentives to the bank staff have created distortions in the sales structure.
If one company's incentives can influence what to sell to the customer, what will happen hereafter? Banks will sell the policies of the company which offers highest incentive, even it can be off the record. It will lead to even bribery instead of curtailing mis-selling.
The Irda chairman raised concerns over the health of insurance companies. "Many companies are making losses even after 10 years (in operation)," he said. On higher foreign direct investment, Vijayan said increasing capital is not equivalent to increasing stability in a company.
The requirement of having a standard proposal form by life insurance companies, with detailed information of the financial needs of the customers, has now been postponed (from August 16, 2013) to April 1, 2014. IRDA said that it has deferred the implementation, taking into account the representations of the life insurance industry.
LIC policyholders need to pay separate service tax for premiums from October 2013. While private insurers add a service tax component to the premium paid by customers, LIC has not been levying the tax on the premium. Now, IRDA mandated that service tax shall not be included in the contractual premium, but collected from policyholder separately. When service tax is charged separately, LIC may be able to pay higher bonuses on the policies, as the surplus in the policyholders' account is declared as bonus.