To improve distribution, the Insurance Regulatory and Development Authority (Irda) has proposed a new concept called insurance marketing firm.
Just like an independent financial advisor, insurance marketing firms will sell life, non-life and health insurance policies. They will also sell mutual funds, pension products of PFRDA and other financial products marketed by investment advisors of Securities and Exchange Board of India (Sebi).
Salespersons associated with insurance marketing firms will come under the jurisdiction of respective regulators. Insurance marketing firms will have a fiduciary responsibility towards customers. Financial service executives deployed for marketing mutual funds products will have to obtain certification from the Association of Mutual Funds in India (Amfi) by passing a certification examination.
Similarly, for marketing products of PFRDA, the salesperson will have to obtain registration as aggregator under the PFRDA regulations. Financial service executives deployed for marketing financial products of Sebi will have to obtain registration as investment advisors under the Sebi Investment Advisers Regulations.
The insurance marketing firms, however, will not be permitted to market any other financial products apart from those mentioned above.
The draft norms on insurance marketing firms have been issued at a time when the industry's penetration (life and non-life) in the country has been slipping consistently — from an all-time high of 5.2% in 2009 to 3.96% in 2012.
Also, as a result of a host of regulatory changes and a cap on commission, many agents have left the industry. Data from Irda’s annual report for 2012-13 show 10% attrition of individual life insurance agents in 2012-13, with the worst affected being private insurers.
The proposed insurance marketing firm will be licensed by Irda. The licence, according to the draft norms, will be valid for three years and renewed if the regulator is satisfied that the firm has adhered to all norms.
The renewal application will have to be submitted to Irda at least three months before expiry of the licence. If the regulator refuses renewal, the insurance marketing firm will still have continue to service existing policies, but won’t be able solicit new business.
The insurance marketing firm will get the licence to operate from one selected district during the first three years. However, it can apply for more districts while filing for renewal.
Every salesperson will have to identify himself and his insurance marketing firm and disseminate correct information about products offered and premiums to be paid, and also disclose the scales