Can Irda’s new rules prevent mis-selling?

05-Dec-2011
Source : Economic Times

If you belong to the growing tribe of Indians that is buying insurance online, there is some bad news for you. The Insurance Regulatory and Development Authority (Irda) has proposed stiff guidelines for Web aggregators, which help buyers compare policies. Aggregators say the guidelines are so restrictive that they will have to shut shop or change their business models.
The regulator believes that these portals influence buyers’ choices and push products for which they are paid by insurance companies. It has, therefore, proposed caps on the remuneration that these Websites can receive from insurers and banned them from rating or reviewing policies. Web aggregator portals rake in big money from advertisements and by recommending policies.
Policybazaar.com, for instance, earns Rs 1 lakh a month for every policy it recommends. Under the new guidelines, which come into effect from 1 February 2012, it will only receive Rs 1 lakh a year per product it lists on its Website. "The guidelines restrict free flow of information to the consumer and are designed to stamp out insurance comparison on the Web as an option," says Deepak Yohannan, founder of myinsuranceclub.com.
What aggregators find particularly galling is the Rs 10 cap on income per lead given by them to insurance companies. When you visit an insurance aggregator site in search of a policy and give your contact details, the information is passed on to companies for amounts ranging from Rs 90 to Rs 150. Irda says the portals cannot receive more than Rs 10 per lead from insurers. "These guidelines are senseless. Nobody will stay in business," bristles Gurtej Singh, CEO of Delhi-based Big Insurance, which attracts the Internet traffic through ads on Google. His company pays Rs 30-35 per click to Google and then passes on the contact details to insurance companies for Rs 80-90 per lead.
The restrictions don’t end here. If a lead generated by a Web aggregator converts to a sale, the portal will be paid only 25% of the commission otherwise payable to an agent. Aggregators are also not allowed to display ads. To prevent companies from circumventing these rules, Irda has explicitly mentioned that an insurer cannot pay an aggregator in any other way than this. "The new guidelines from Irda are slightly myopic," says Akshay Mehrotra, chief marketing officer of Policybazaar.com. "If aggregators shut shop, it will have an impact on the industry as well," he adds. Mehrotra points out that Policybazaar accounts for almost 70% of all term insurance plans sold online.
Insurers’ stance
While insurance aggregators see these new rules as the beginning of the end, insurance companies are not overly worried by the development. "Aggregators may say that this is not feasible, but the fact remains that Irda has given them an opportunity to earn a flat fee of Rs 1 lakh a year for every product they list," says Suresh Agarwal, executive vice-president and head of strategic initiatives at Kotak Life Insurance. He says it is a reasonable move, which will ensure that the aggregation and selling functions are kept at an arm’s length.