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Impact of IRDA new rules on insurance portals and customers


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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.

Others feel that aggregators should confine themselves to providing information instead of trying to review policies or rating products. "Reviews and ads on Websites might create an element of bias, given the nascent stage of online channel in our country," says Kamalji Sahay, managing director and CEO of Star Union Dai-ichi Life Insurance Company. He says the rule that aggregators must only display product information furnished to them by insurers should not be interpreted as restrictive. "On the contrary, it keeps the Web aggregator on the same page with the concerned product issuer, which is good for both," he says.

"The new guidelines are not meant to curtail the growth of online and digital channels, but regulate them more closely," says Yateesh Srivastava, chief marketing officer of Aegon Religare Life Insurance.

 

Impact on consumers

Many customers look for advice while buying insurance online. Right now, the quality of advice offered is the only unique selling proposition of Web aggregators. However, this will be diluted by the new guidelines because aggregators won't be allowed to rate, review or recommend products. In short, they will be reduced to mere information sites with nothing to differentiate one from another.

"No doubt the information given to the consumer will be unbiased and standardised, but there will be no value addition from the aggregator's side," says Satkam Divya, business head of Rupeetalk.com. "Aggregators have a role to play and if they play it right, the customers will benefit. These portals need to make a basic minimum profit to stay in buisness," says Sanjay Tripathi, CMO, and HDFC Life.

Irda's move comes close on the heels of another proposal from Sebi, which seeks to separate the investment advisory and sales functions to prevent a conflict of interest in mutual fund distributors. A concept paper floated in October had proposed that an advisor who recommends investments cannot be the agent who sells them. This is meant to prevent mis-selling.

Source: Economic Times


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