From Insurance Worker September 2013
FFF(For
our Field Force)
LIC
Agents do Right Selling!
ARIVUKKADAL
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.
