The test of good conduct of business by insurers is whether policyholders are treated fairly both before the contract is entered into and throughout the lifecycle of the insurance policy, until all obligations under the contract have been satisfied. From the regulatory perspective, the pre-requisite is a proper framework including relevant laws, rules, regulations, guidelines etc., within which the insurers and intermediaries operate.
Â
A good framework for conduct of business lays down benchmarks for various aspects of policyholder servicing. When it comes to monitoring and supervision, the Regulator should be able to identify concerns from a macro and systemic level and bring about required changes in the framework.
The lifecycle of a policy includes the proposal stage, the issuance of the policy if the proposal is accepted and various policy and claims servicing areas ranging from correction in the policy details to a change of address, receiving a claim intimation, arranging for a survey (wherever applicable), disposing of a claim, etc.
The IRDA has laid down turnaround times for policyholder servicing in its regulations for protection of policyholders’ interests brought out in 2002 and these relate to right from the time before a contract is entered into through to the point of all obligations under a contract being settled.
Delays vis-a-vis these timeframes would mean a deficiency in service. When there is a deficiency in service, the prospect or policyholder, as the case may be, may approach the grievance redress channel of the insurer and the IRDA, if needed to escalate the case; or the Ombudsman, if it falls within the jurisdiction of the same.
The initiative of IRDA in implementing the Integrated Grievance Management System (IGMS) has created a central repository of industry complaints, which lends itself to various types of analyses relating to conduct of business by insurers.
The IGMS is not only a tool of IRDA to monitor disposal of complaints by insurance companies, but also a facilitator for meaningful analysis relating to market conduct, company-wise, geography wise, etc. An analysis of the data in IGMS for the year 2011-12 shows that in the life insurance area, complaints relating to mis-selling or ‘Unfair Business Practices’ as the category is called in the system is predominant.
Prior to this, the category ‘Policy Bond Not Received’ was the predominant reason for complaint. A geographical analysis of the data at an earlier date, had led the insurers to revisit the dispatch and delivery systems in place and to bring about improvement in these areas.
A drill down into the category of ‘Unfair Business Practices’ for the year 2011-12, shows that mis-selling is predominant in the conventional policies category as against ULIPs, which was the case earlier. The regulatory interventions by IRDA on ULIPs have brought down the percentage of complaints pertaining to this category, reflecting an improvement in the conduct of business in this area.
Prescription of a standard proposal form for life insurance and the requirement that the insurers shall have in place a “Prospect Product Matrix†that will determine suitability of products based on needs analysis is an initiative that will help reduce mis-selling.
Mis-selling as a fall out of technological advances including distance marketing such as tele-calling and marketing through the web have been addressed through guidelines issued by the IRDA for distance marketing as well as guidelines for web aggregators.
The IRDA is now analyzing other areas relating to mis-selling including tampering and forgery, tying and bundling, etc., with a view to ensuring that the industry puts in place better systems to prevent or reduce such instances.
In non-life insurance, analysis of the data on IGMS shows that ‘Non-receipt of Policy Bond’ is the main cause of complaint though complaints relating to claims come a close second. Conduct of business concerns in this sector mostly relate to health insurance and motor insurance – refusal to give cover; refusal to renew; forced selling through tying insurance with other goods and services; disputes related to quantum of claim and disputes relating to liability under a policy.
The major concerns in these areas have been addressed by the IRDA through several initiatives, such as, proposal to issue comprehensive Health Insurance Regulations, the Declined Risk Pool in Motor Insurance, etc. The moment of truth in insurance is always at the point of claim and this hinges upon disclosures about obligations and rights relating to the insurance policy transparently upfront by the insurers.
A product disclosure statement in the form of a Key Features Document will help, so also the actual policy being written in plain language. The IRDA has been, for quite some time, working in these areas but there really is a long way to go to get them implemented across the industry considering various factors such as cost, legal issues, etc., which are involved.
The IRDA’s efforts at working in the direction of improving transparency at the point of sale, in collaboration with the industry will continue. The complaints category of policy bond not being received and the related issue of complaints regarding free-look period in life insurance policies and certain health insurance covers as a market conduct concern should get further diluted with the initiative of the IRDA towards building an e-insurance repository.
The efforts of the IRDA are constantly directed towards identifying concerns relating to market conduct and providing solutions from a macro perspective that involves policy decisions and improvements in the regulatory framework. This is where the IGMS comes in, as a facilitative tool to help drill down deeper to understand the underlying factors.
However, data in the IGMS repository is truncated as it only relates to complaints. With a view to expanding the base data relating to policyholder servicing by insurance companies for a better analysis of actual servicing time-frames, the IRDA is going to shortly prescribe certain ‘Market Conduct Returns’, which will initially be on an annual basis.
Data relating to actual turnaround times for the entire gamut of policyholder servicing – proposal stage through to the final discharge of all obligations under the policy – is proposed to be called for. To collect this data, it is proposed that as the initial step, returns be called for the most sold product in each company.
Courtesy IRDA Annual Report 2011-12
