-1.jpg "Dhirendra Kumar")
The Swarup Committee’s recommendations on insurance commissions and transparency are a golden opportunity for the Indian insurance industry. Currently, I find that the entire discussion is focused on ‘consumer versus insurance industry’. Some insurance companies, and most of the media, are seeing this as a contest of sorts, wherein Mr Swarup has taken some of the rewards from the insurance companies’ pockets and passed them on to the customers. This is a wrong perception. The panel’s suggestions are a big step forward for every stakeholder, beginning with the customers.
The new rules will clean up the insurance business and give it an opportunity to transform itself into a provider of services that the consumer will buy willingly instead of being trapped into doing it. Insurers don’t have any other way of moving forward. The reason is simple. Misselling and anti-consumer behaviour in the insurance industry have reached an extent where they simply can’t continue. It is bizarre that insurance executives blithely oppose the reforms and mouth the same excuses in order to continue with their current practices. Are they really unaware of the groundswell of loathing that their customers have for them? I guess they are, but perhaps in a population as large and uninformed as ours, it is possible to continue finding fresh victims for a long time.
I’m not sure if the proposed reforms will survive the formidable lobbying prowess of the insurance industry, but as I said earlier, they could eventually prove to be good for both the insured and the insurers. Currently, the entire sales model of the insurance industry is based on a deep lack of confidence in their own products. When an insurance company hands over almost half of your first year’s premium to a sales agent, this is what it says implicitly: “Our products are not good enough for customers to buy them of their own free will. Only when we pay commissions that are huge enough to create a predatory sales force will we be able to sell our products.”
Apart from the focus on lower rates, what is most admirable about the Swarup Committee’s recommendations is the clear-headed connection it has made between high commissions and mis-selling. The high commission rates are not an incidental problem. It’s not as if insurance holders are paying a high entry cost for what is otherwise a great product. Instead, the frontloading of high commissions practically guarantees that customers are sold products which are harmful for their financial health. Sooner or later, a good chunk of customers will decide to cut losses and abandon the policies. Mis-selling is built into the current business practices of the industry.
Industry apologists are fond of pointing out the wide variety of benefits being bestowed upon the nation by the insurance industry like providing employment and boosting the stock markets. These are irrelevant. The core expectation that we should have from the country’s insurance industry is insurance. There are crores of Indians who have either no or marginal insurance cover. The only measure of whether the opening up of the insurance industry has served any purpose is how much insurance cover customers are getting and at what cost. The rest is obfuscation designed to hide the truth.
Dhirendra Kumar is CEO, Value Research
