The move by the insurance regulator is in the interest of customers as it would bring transparency in the way insurance is pushed by intermediaries. Many times the customer does not even know the insurance company’s name whose product he may be forced to buy

Insurance Regulatory and Development Authority (IRDA) has come out with a discussion paper which details the aspects of tying and bundling insurance products. Insurance mis-selling or forced selling is a reality that cannot be easily wished away. Often, the customer ends up with a product with little knowledge of insurance company as there may not be a choice. “White labeling” of insurance products makes it difficult for customers to differentiate between the core product and the incidental one. There is a conflict of interest in most of these cases as the seller is often a corporate agent or their group entities are insurance brokers. These areas, therefore, need attention from the consumer-protection point of view.

Buying a new car usually ends up with the auto dealer pushing the insurance product of his choice down the customer’s throat. The product is from the insurance company which gives a hefty discount for getting volume sales, which the dealer undertakes. Life insurance against home loans is classic example of a customer either taking what the bank offers or going to another bank. There is no other option. In both these examples, the intermediary commission is paid by the insurance company.

According to Avadhoot Mavlankar, principal officer at Shinrai Insurance Broking, “This is not new to the insurance market. The classic example was a credit card, which used to have in-built personal accident cover. But its shortcomings were discovered when there were serial blasts in the Mumbai local trains. The personal accident policy did not cover terrorism. Tying and bundling insurance policies with other services is mostly coming as a mandatory requirement especially by banks; which is not a healthy practice.”

Arvind Laddha, chief executive officer of Vantage Insurance Brokers and Risk Advisors, brings another perspective. According to him, “Tying or bundling of products helps customers by reducing the transaction effort and also opens the possibility of some savings for them. However, occasionally we do see that the insurance intermediary is able to exercise undue influence on the customer, due to the extended relationship they enjoy. The regulator should consider allowing the distributor to bundle the insurance product but should ensure that the customer can transparently see the value he is getting. It may also be appropriate to issue guidelines that do not allow a bundled product to be highlighted largely as an insurance product, as it could result in formation of groups with a view to merely enjoy the benefits of bulk purchase of insurance.”

According to Kamalji Sahay, managing director and chief executive officer, Star Union Dai-ichi Life "Bundling of products evolved for adding more value for the customer through one life insurance policy.  In fact, this offers the customer better benefits than what he would be able to receive through a core product.  This suits the need of large number of customers; of course, not every customer." Moneylife tried contacting several other insurance companies to get feedback on IRDA initiative, but there was no response till the time of writing this article.

IRDA’s discussion paper comes down heavily on group insurance covers that are bundled with mutual fund products. According to the insurance watchdog, “One of the concerns that arise here is the manner in which this is advertised by the service provider. Providing information regarding the insurance cover is okay but highlighting that more than the core service being provided misleads the public. This violates the IRDA (Insurance Advertisements) Regulations, 2000. The insurance cover will have to be incidental to the other financial product.  There could be instances where the public is led to believe that the insurance cover is the main feature of the product that is being sold.”

Mr Mavlankar says, “Some insurers who have big retail outlets have tried it through mall assurance, but it has not been successful. IRDA should come up with very clear guidelines and should specify the minimum cover such policies should offer, further the drafting of such policies should also be simple.”

Tying is defined as two or more products packaged together where at least one of the products is not sold separately while bundling occurs when products are packaged but are also available separately. The discussion paper is a great initiative from IRDA which will delve whether it should stop bundling of insurance products with other goods or services or allow this activity with some checks built-in. IRDA has sought feedback on its discussion paper, which is available on its website www.irda.gov.in.  Kindly mail your opinion to ypriyab@irda.gov.in on or before 15 March 2012.