Transparency wave now covers insurance agents

Those looking to buy a life insurance policy can now ask agents how much commission will be paid from the premium and the agent will have to disclose this. Earlier, this was applicable only for unit-linked insurance plans (Ulips). In addition, customers can ask agents for their identity card or appointment letter to verify their authenticity. Agents will now have to inform the policyholder upfront about the chances of the policy being rejected or approved. Agents will also not be able to hide information about whether the policyholder is a smoker or non-smoker, from insurance companies as this will affect underwriting.

In the past, agents used to withhold such information to ensure the policy is approved. These are the main features of the codes of conduct prescribed for insurance agents in the Regulations for Appointment of Insurance Agents notified by the Insurance Regulatory and Development Authority of India (Irdai) recently.

While some of these codes were already in place, the latest notification has to be implemented by all insurance companies.

Importantly, the regulations also say that agents should not offer different rates, advantages, terms and conditions other than those offered by the insurance company, demand or receive a share of proceeds from the beneficiary under an insurance contract or force a policyholder to terminate the existing policy and buy a new policy from him within three years. If an agent’s licence is cancelled, he cannot apply for fresh agency appointment before five years. An agent who does not comply with the code of conduct can be penalised up to Rs 10,000. Even insurance companies can face penalty as they have fiduciary responsibility for agents.

“The code promotes transparency in disclosures at the point of sale and provides the customer the right to demand information relevant for the purpose of decision making. The provision on blacklisting agents and having a central database ensures that a mechanism to verify the background of the agent is in place to protect the interests of the customers,” says C L Baradhwaj, senior vice-president (compliance) & chief risk officer at Bharti AXA Life Insurance.

“It will benefit the industry since it brings in transparency. It helps mitigate the risks associated with protection of customers and mis-selling. Some may feel that if the customer knows how much I am earning on a traditional policy, he may ask me for the commission and that this will weaken the sales process. But, that is a short-term blip. The impact will be marginal and temporary,” says Rushabh Gandhi, director of sales and marketing at India First Life Insurance.

The first year commission for traditional policies can be as high as 40 per cent, which customers might consider too high. But, if the product meets the customer's requirements, he would be willing to buy it despite knowing how much commission is paid to the agent, says Gandhi. So, agents will have to sell the right product to customers.

Now, customers can ask the insurance agent to demonstrate how the product satisfies his or her insurance needs. To verify the authenticity of the product features, customers can ask for a copy of the product brochure supplied by the insurance company to the agent. “Further, the details of insurance premium charged, including extra premiums, if any, the mode of payment of premium, benefits, nomination facility, exclusions (circumstances when the benefits are not paid) etc, are required to be disclosed at the point of sale and, if not disclosed, customers can demand,” explains Baradhwaj.

Irdai maintains a centralised list of blacklisted agents. Customers can verify if the agent is blacklisted or not by entering the agent’s name, licence number (if available), type of insurance, name of the insurance company, state and district, etc. Some insurance companies also publish a list of blacklisted agents on their website. Customers can lodge a complaint directly with the insurance company or through the Irdai portal about blacklisted agents.

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