The insurance regulator has clear reservations about the key recommendations of the Sumit Bose committee report, which has attempted to curb mis-selling of insurance products by intermediaries.
With the rise of insurance schemes available for investments, you are spoilt for choice but so are the evidences of wrong selling of these schemes. How many times have pesky insurance agents forced you to invest in schemes you don’t want?
Keeping this menace in mind, the finance ministry had set up a committee, headed by former finance secretary Sumit Bose, to look at ways of reducing mis-selling of financial schemes and to protect consumer interest. The report was submitted to the ministry in September 2015.
“The insurance sector has a long history and has developed in a certain way. The recommendations of the committee has come to us but we cannot implement sudden changes” says TS Vijayan, chairman of the Insurance Regulatory and Development Authority of India (IRDAI).
Sources suggest that insurers, private and government, as well as the regulator feel that the Sumit Bose committee report will disrupt the insurance sector, if implemented in its entirety.
The main recommendation of the committee is to stop upfront commissions, on investment products and insurance components of bundled products, that intermediaries get on selling investment products. The suggestion is to move the commission to a trail model, based on the amount of business that an intermediary or agent get for a company.
“This committee is thinking first of the consumer and her welfare. But we have also taken into consideration the compulsions of the sector. And the changes have been recommended for products sold in the future,” says Sumit Bose. But IRDAI chairman feels that, “New products will have to be developed keeping in mind the recommendations”.
The report also called for more transparency during selling a product by explaining how the customers’ money is being split between insurance and investment. And if an insurance scheme is being sold to a senior citizen, the report calls for scrutiny by the financial institution selling it.
“It recognises that most insurance schemes are sold by agents enthusiastic about getting a fat commission and not on the basis of the need of a consumer,” says a source in the finance ministry who did not wished to be named. He further clarifies that all insurers are opposing the report as it delves deep into fundamentally changing the commission system, and this hurts agents aggressively selling products.
“The report is one-sided. It has to look into the nature of the insurance sector and how it functions. There cannot be knee-jerk changes in the sector” says V. Manickam, secretary, Life Insurance Council; a body that represents all the 24 insurance companies currently operating in India.
Official data reveals that at present over Rs 13.51 lakh crore of retail savings are invested in mutual fund schemes, life insurance products and the National Pension System (NPS). Data with the Insurance Regulatory and Development Authority of India (IRDAI) reveals that the assets under management with the 24 life insurers was Rs 23,568.14 crore with a total of 46.44 lakh policies as on June 2015.