Sharad Bajaj, Founder & CEO, InsuranceDekho, says “the consumer who is buying the product should not be pressured. They should clearly understand the particular product which they are buying, what are the terms and conditions and what are the exclusions in those products. They should look at whether the coverage that is being suggested to them would be sufficient or not. ”
I want to throw some light on the kind of mis-selling that is involved in the entire insurance sector – be it life, health or any other form of insurance.
I would list down a few; one the agents or somebody who is selling insurance to you might not tell you the right benefits or the right coverages that the insurance covers. They might also, one other common type of mis-selling that happens is let us say the premium payable is for multiple years or you need to pay a premium for the next 10 years, but the agent might tell you that premium payable is only for one year, it is a one-time payment. So that is one more kind of misselling that happens.
Another typical thing that happens is there are riders or there are caveats which an insurance company puts in. For example, in health insurance, an insurer might accept your proposal after adding that a certain kind of diseases or ailments would not be covered but the agent might not inform you about the same.
Another mis-selling that is happening is where you conceal important information and what I mean by conceal important information is let us say as a consumer or as a user, somebody who is looking to buy a health insurance, you tell your agent upfront that these are your pre-existing diseases, these are your medical conditions. Now the agent might know that if they fill in this information and they log in the case, the insurance company would not accept the proposal.
What might also happen is that the agent might not declare all these pre-existing medical conditions of an individual and might just give a declaration that the individual is fit and fine. Now what will happen is that the policy will get issued, everything will look hunky-dory to the customer that hey I have got the policy but God forbid, if something were to happen in future and at that point in time if the insurance company gets to know about your pre-existing disease which more than likely they will get to know because the doctors or the hospital who are going to treat you would essentially ask you for your medical history and as a user since you were honest earlier, you would definitely be honest with the hospitals and the doctors that hey these are the medicines that I was taking, these are the ailments which I had previously and the moment that gets recorded in your file and the file goes to an insurance company for a claim processing, your claim would get rejected.
So it is very important that all the information that you provide to an insurance agent regarding your condition should be clearly mentioned in your proposal form and should also be part of your policy document.
First, what is the difference between buying an insurance policy from a broker and from an agent? Second, a lot of times agents have a tie up with certain insurance companies which the buyer is not aware of and these insurance agents are very smart in just pitching those particular products. How can a buyer understand and have all options in front of them?
As per the Indian guidelines, an individual can become an agent of one health insurance company, one non-life or general insurance company and one life insurance company. So an agent is only allowed to sell insurance products of one company. Now let us say if I as a consumer go to an agent and want to buy life insurance. Legally that agent is only allowed to sell insurance of one insurance company. So what would typically happen is that the individual would try and push an insurance policy of that particular company where they are a commission agent. Now is it the right product that we as consumers or anybody who is trying to buy an insurance should look at?
Typically in life insurance, we can look at two major products, one for protection and the other from an investment perspective. Now protection is something where you get paid only in case of an untoward incident happening and in case of death of an individual or an individual surviving till a certain age. That essentially means if you are looking for a product where if anything were to happen to you, then your family does not have to go through hardship, they do not have to go through a financial burden.
Second is if you are looking for investment purposes. If somebody wants to get a certain corpus after 10 years for the education of their children, then they need to look at an investment product. So what is very critical and important is to understand why is somebody looking to buy an insurance, what is the right need, what is the coverage that one needs, what is the sum insured that one needs and look for an insurance only for your specific needs.
So from an agent perspective, if you are only allowed to sell insurance from one insurance company, there is a chance that the agent might try and sell you a particular product only and that product might not be the best product in terms of your financial or protection needs; so that is one difference.
When you look at buying from a broker, a broker is allowed to work with all the insurance companies. So a broker might give you a bouquet of options in terms of the product or the products available for a particular customer. Obviously the question is even from a broker perspective, the remuneration of a broker might be different for different products. So you might have a scenario that a particular broker or a particular individual is trying to push up a product where the commission is high but we should always look at the product which is being pitched to us, is that making financial sense, is that fulfilling our requirements.
The consumer who is buying the product should not be pressured. They should clearly understand the particular product which they are buying, what are the terms and conditions and what are the exclusions in those products.
I also want to understand the commission structure. We know the regulator is trying to work on it and a lot of new mandates have come. How can the buyer understand the commission structure that is involved when you buy an insurance policy from an agent or a broker?
Till March 31 of this financial year, the commission structure against each product was fixed, by IRDAI. But from April 1, IRDAI has implemented something which is called EOM or Expense of Management, where an insurance company can have variable commissions or differentiated commissions payable to different partners. So they can pay a different commission for the same product to an agent and to a broker.
They can differentiate bBetween brokers and between agents also. But typically, in terms of life insurance policies, the commissions are very high on the first year business that you source and subsequent renewal years, the commissions are minuscule or minimum. In terms of health again, higher commissions for new fresh policy sourced and commissions are differentiated or lower commissions for renewal. In case of motor insurance, it is typically similar commission across years that works.
What is the kind of homework that is needed from a buyer’s point of view or the kind of preparation that they need to do? How can one be prepared to identify the needs that one has to make the right kind of purchase from an agent or a broker?
What a buyer should do is one, just not rely on the agent or broker’s word in terms of which product to buy, what coverage to take; they should do their own research.
Second, in terms of product benefits or the benefits that a particular policy provides, they should also do their own research and not rely on any handwritten notes. They should ask for brochures from the company, the specific policy that they are buying, they should ask for those policies, brochures and compare them, compare different policies and see what benefits are being offered by different companies.
Three, they should go online, come on the website of the insurer on the website of a broker where these documents are easily available and they should also try and download the documents from the website itself and try and seek information if the information which is available online are they same as what the insurer or which the agent or the broker is providing because for any policy, any product the information which should come from the website as well as what the agent or broker should provide, should they exactly match, there should be no difference.
So buyers should look at all of these. and lastly means without any doubt, they should ensure that the policy that they are buying that should meet their requirement, they should clearly call out and clearly understand why they are buying an insurance policy and that the coverage that they are getting is sufficient.
Say somebody’s annualized income is Rs 10 lakh. Now from a term insurance perspective, you can typically buy up to 20 times your annual income or that is what the suggested coverage is. If your annual income is Rs 10 lakh and the agent is suggesting that you buy a term insurance only of Rs 25 lakh, then that is a red flag because if anything were to happen to that individual, would Rs 25 lakh of corpus be sufficient for the family to survive post an event?
So they should look at whether the coverage that is being suggested to them would be sufficient or not. In case of health insurance, they should look at their existing illness and if they could foresee any kind of hospitalization for any pre-existing disease in the future and what kind of expenses would you incur when there is a hospitalization for any disease and the coverage that they are getting is sufficient and if there are caveats in the policy document.
Say for example, a very high co-pay for health insurance or a very high deductible that is being implied in the policy. Those are the things which a buyer should definitely look at and also see whether the individual or the agent or the broker is trying to put any pressure, whether they understand the products correctly or not and whether there are any hidden fees, any charges.