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 of commission.
He will have to promptly inform the prospect about acceptance or rejection of the proposal by the insurer. He will have to forward to the insurer information received from the client regarding any claim. The insurance marketing firm will have to keep a copy of the proposal form signed by the client as well as maintain records of know-your-client details, a premier register, copy of the policy document issued to the policyholder and also charges or commission received from him/her. The firm will have to submit quarterly new business reports, insurance sales persons deployed by the firm and any other return that may be required by the regulator.
Irda may inspect records of the insurance marketing firms and, if it finds any deficiency, it may suspend or cancel the licence of a company.
The insurance marketing firms will have to put in place adequate steps for redressal of grievances and address them within two weeks of their receipt. The firm will also have to inform Irda about the number, nature and particulars of the complaints received.
The applicant will need to have a net worth of R10 lakh and ensure that it is maintained at all times and is certified by a chartered accountant. Every insurance marketing firm will have to take a professional indemnity cover throughout the validity of its licence. The limit of indemnity will be four times the business turnover of the firm.
The Irda has mandated that the principal officer of an insurance marketing firm must have 10 years’ experience and should either be a fellow/associate of the Insurance Institute of India, Mumbai, or associate/fellow of Institute of Risk Management, Mumbai, or associate/fellow of the Institute of Actuaries of India ,or hold a post-graduate degree of the Institute of Insurance and Risk Management, Hyderabad. The principal officer will have to undergo 50 hours of brokers' training from an institution recognised by Irda.
Insurance salespersons associated with a firm will need to have at least a matriculate certificate and must have undergone the brokers' training prescribed by the regulator.
All salespersons engaged by the firm will be paid a monthly salary that cannot be lower than the minimum wages. In addition, the firm, depending on his performance, can pay him additional incentives, which will have to be declared up front and will be part of the employment contract between him and the insurance marketing firm.
Analysts say the regulator's proposal for insurance marketing firms can help increase the penetration of insurance products in the country and attract agents if they are remunerated well. They also say the agents will have to be trained well as they will sell multiple financial products and the chances of mis-selling will be high.