Regulation: Why Has the Insurance Broking Model Failed?

Raj Pradhan 01 February 2017

Personal Finance

Insurance Regulatory and Development Authority of India (IRDAI) has imposed a penalty of Rs15 lakh on HDFC Life for violation of various regulations, including payment to brokers under the head of skill-building.

The regulator’s scrutiny found that the brokers’ employees were sponsored for foreign trips in the name of training. IRDAI, rightly, concluded that “Foreign trips to the employees of the brokers influence the brokers to sell the products of a particular insurance company by acting as a de facto agent, thereby defeating the objective of insurance broking model.” It means an insurance broker, who is supposed to suggest a product in the best interests of the consumer, will end up like an agent, pushing for a product from an insurance company which gives incentives like foreign trips.

Unlike insurance agents, who represent the insurer, an insurance broking firm is supposed to represent the customer; hence, they are allowed to sell products from any insurance company. But, instead of suggesting the product best suited for the customer, the broking firm’s decision may be influenced by an insurance company giving perks to the broker. Hence, buying an insurance product from an intermediary is not easy, since you don’t know which one is ethical.

There are real-life examples of intermediaries mis-selling by telling the customer to suppress their health condition. The goal of the intermediary may be to ensure that the insurer underwrites the policy, earning him a commission. But, an inaccurate proposal form will come back to haunt the customer at the time of a claim. If you do not trust an intermediary, it is better to buy an insurance product online from an insurance company’s website and not from web aggregators like Policybazaar. It will ensure that the proposal form you fill online will be what is received by the insurance company. Ask the insurer for a copy of the proposal form received along with the policy document.

Comments

User

9 years ago

Money paid by Insurance schemes as Cash back or as Pension by Pension schemes is considered by the Govt of India as Income. Income Tax is levied on it. Why is Form 15 G/H (Declaration under section 197A (1C) to be made by an individual claiming certain incomes without deduction of tax) not taken by Govt of India or the Insurance or Pension schemes or companies to exempt earners of such income from Income Tax as is done for income from Interest, etc. ?Â It must be allowed immediately. The Insurance or Pension payment must be made without deducting IncomeTax if Form 15G/H is given.
What is the action of IRDA to make it be accepted ?
Bajaj Allianz Insurance Co Ltd refuses to take such a Form.

Sudhir Mankodi

9 years ago

Fully appreciate regulator' s action. Last year SBI opted for health insurance cover for its retired employees to one of the PSUs. The terms were very attractive with 30% of the cover as reimbursement towards domicilliary treatment and a cover for Rs.3.00 lace at Rs.5500 app. This year the renewal is costing Rs.18000+ and with reduced percentage of domicilliary expenses. The deal was through a broker and they did not represent the interest neither of the bank not of the pensioners of the bank. By customising first year's attractive terms they only helped the insurance company in increasing their top line and build future profitable portfolio by shortchanging pensioners.

Sudhir Mankodi

9 years ago