‘Mis-selling’ tag haunting insurance sector
21 Feb, 2014 02:02 PM
Generating nearly 20% of global life insurance premium, Japan is the second-largest market in the world. The country’s insurance penetration is 10%, which is far ahead of the US and, of course, India. Even then, while conveying his new year message to the industry, the chairman of Life Insurance Association of Japan emphasised on boosting customer awareness and mutual understanding to fulfil the mission of the industry.

The industry is expected to bridge the gap between an individual’s financial needs following a contingency and the support provided by state under social security schemes. Whatever be the economic advancement of a society, this gap will always exist and, hence, the need for a self-help tool. Life insurance fulfils this need, which has to evolve with the changing needs of the people and the market. It is also important to promote this business in a manner that it keeps pace with relevant market forces and its benefits reach as many people as possible, in forms and shapes that suit their age profile and social commitments.

I consider life insurance a sensitive business, which calls for an equally sensitive regulatory framework, and an empathetic distribution and service strategy. Good faith between the provider and the recipient of insurance is the basis on which a transaction takes place. This naturally calls for highest standards of business development and service delivery. This distinctive feature of the insurance business explains the concerns of the Japanese official.

When the Malhotra Committee was constituted two decades ago, it was mandated to suggest reforms in insurance to tap the sector’s vast potential. The recommendations led to opening of the sector to private players. They also paved the way for FDI, which seemed to augment resources for faster growth. The sector witnessed rapid growth for a decade but, after sudden activism by Insurance Regulatory and Development Authority (Irda) in 2010, prompted by so-called ‘misselling’ the sector suffered a setback. And, in spite of several steps taken by the regulator and the ministry of finance, the sector continues to limp. In the last four years, Irda issued more than 20 circulars altering the existing guidelines or introducing new ones. In the first 10 years of regulation, it had issued less than 10 guidelines altering or establishing norms for carrying out business activities.

Today, the sector’s performance has been causing concerns at all levels. Penetration fell by more than 1%, about eight lakh advisors dropped out, thousands of offices were closed down and massive attrition divested the industry of the glamour and the strength it once enjoyed. ‘Mis-selling’ could have been dealt with through gradual modifications to Irda's own guidelines, without publicly denouncing insurers and advisors/agents for “defrauding” the public.

The products they sold were duly approved by Irda as was the commission received. However, since then, the industry has been struggling with the stigma and trying to cope with the spate of changes the regulator has rolled out. The rapidity and intensity of changes to the regulations are forcing insurers to reorganise their systems, processes and people at great strain and costs. It is not surprising that the stimulus announced by the finance minister last year could not reverse the trend of degrowth.

The present controversy in respect of bancassurance may prove to be the last nail.

Rapid socioeconomic changes are taking place in India, which requires all institutions to transform themselves into growth agents. The rise of the middle class, improving healthcare and emergence of a growing population of senior citizens necessitate regular cash flows, which long- warrant the presence of a vibrant and dynamic insurance sector.

We need to concentrate on creating an insurance talent pool through training and research. India must create large reinsurance capacity, and aim for depth in underwriting capabilities and product development and valuation expertise. It is high time we came back to the right track and created a billion customers, all happy and satisfied.
Source : The Financial Express

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