Sales vs. interest of policyholder: Role of regulatory body and insurance industry

If policyholders’ interest is effectively and confidently protected with the provision of the best possible service, the insurance industry will grow and as a result penetration levels will automatically increase

In the recent past there have been many criticisms levelled at regulatory bodies and their actions that had contributed to the inefficiency of certain ministries – resulting ultimately in the public questioning the role of the Government.

The regulatory systems that have been put in place have been designed to function very efficiently, provided those involved in those bodies carry out their role in a competent manner to safe guard the interest of the Government and ultimately the public.

Having closely studied the function of the insurance regulatory body and its approach recently, especially with regard to the selling of insurance through mobile platforms, let me address some of the misconceptions and doubts created by some writers with regard to the direction that the insurance regulatory body imposed recently regarding mobile insurance.

We have seen many interpretations (rather misinterpretations) being given by those who have no insight in to the direction issued by the commission. They have done so ignoring the reasons why the commission had to regulate this area of insurance sales in the first place.

The regulatory body’s prime duty is to ensure that the policyholder’s interests are upheld and protected. Accordingly, this whole process is governed by the Insurance Act No. 43 of 2000 and all its subsequent amendments. Therefore, it is important to give special attention to section 3 of the Act, where it mentions that the regulatory body must make sure that the insurers carry out their business with integrity, in a professional and prudent manner with the view to safeguard the interest of the policy holder, including the potential policy holders, which effectively means the general public.

Since this whole process is governed by the above Act the Commission cannot act arbitrarily to impose rules, regulations or directions without adhering to policies, criteria and principles set out by the Act.

The recent decision to regulate this area of sale, it was learnt, has been issued after lengthy deliberation. Anyhow, this method of selling had been in practice for over 10 years without adhering to the due procedures which amount to acting in contravention of the Act.

The Insurance Act stipulates very clearly who is legally permitted to engage in the insurance business. Section 78 of the Act clearly mentions as to the persons who are eligible to engage in selling insurance and section 79 further clarifies that policy, by providing that nobody is allowed to act or hold itself out as an insurance broker or agent unless such person is a holder of a certificate of registration from the regulatory body.  

Section 90 of the Act also clearly denotes that any person that commences or carries on an insurance business without being authorised by license or duly registered under the Act is “guilty of an offence and shall, on conviction after summary trial before a Magistrate be liable to a fine of not less than Rs. 50,000 or to imprisonment … for a term not less than one year or to both such fine and imprisonment”. 

Accordingly, the act also makes it mandatory that all such persons or establishments should register with the commission and must come under the preview of the regulatory mechanism established by the commission. This regulatory process is prudent due to the fact that insurers are collecting public money and this area of business is considered as a social enterprise more than a purely for profit-oriented ventures.

The duty of any regulatory body is to thus correct procedures according to the guide lines set up by the Government. This authority and regulatory power helps the Commission to protect the interest of the general public and to make sure insurance companies’ adherence to good practices and it should be seen as paramount for the sake of the industry and general public. Failure to do so could result in a well-informed client holding the regulatory body accountable in the event that his policy documents have a problem or when his claim is disputed by the insurer. 

Furthermore, a gazette issued on 9 May 2014 published and detailed rules regarding even an institutional agent whereby clause 2 (b) states that ‘such person shall obtain prior written approval of a regulatory authority … to act or hold out as an insurance agent’.

Moreover, Section 34 of the Insurance Act clearly mentions from whom an insurer should accept its business from – specifically citing under Section 34 (c) (d) it should be only from an insurance agent or broker registered under this Act. In spite of all these express provisions in the Act and Regulations put forth, some have been practicing unlawful activities by selling insurance and accepting premiums from unauthorised entities. The argument is they need to reach out to untapped markets.

What is this untapped market?  This so-called target market is those in the lowest income bracket i.e. low income group, daily paid workers, etc. This is the most vulnerable group and their characteristics consist of mainly low income, less educated, not technologically savvy and are easily manipulated. It does not sound very logical to sell a legal contract using technology to people who are not technologically savvy.

The prime duty of all regulators (not only insurance regulators) is to protect the public interest. When we say public interest, the vulnerable sector is the most crucial sector in need of protection. Therefore, as regulators they cannot turn a blind eye when big conglomerates are collecting money from vulnerable communities using easy methods and manipulative marketing propaganda, whilst giving less importance to the benefit they are offering them. This method of sale is called “Reduce to Ridiculous” and should never be used on a sector that has less education and information on what they are buying into.

Such methods of sale can be seen as the equivalent of fraudulent finance dealers collecting deposits from customers having given them the promise of high interest returns. It’s also known that these kinds of disputes are prevalent in the micro finance sector and appeal after appeal has been submitted to the Government to intervene on their behalf and look into their grievance.

Therefore, the collection of funds need to be closely monitored and regulated in order to make sure the funds collected are accounted for, so that the insurance sector will not be an additional burden to the Government at a future date as has been seen with the micro-finance sector.

It is my view that the Government regulatory bodies are statutorily bound to cautiously look in to these areas but not to act in order to further their own personal interest or industry lobbies. The commission members of the regulatory body should be concerned about the (insurance) business and sales carried out and if anyone is in violation of the Act. It is the prime duty of the regulatory body to protect the interests of the policy holders, and ultimately the industry and the Government. 

The Commission’s stance is not to state that the use of technology is wrong, less important or unacceptable. The regulatory body has given insurers viable options to carry out such business (mobile insurance selling) through their agents, or brokers or have their own platform with trained insurance agents who are qualified in the area of the insurance business. They can develop software/apps to carry out such sales and reach out to this group through qualified and trained agents under the supervision of their institutions. This will also help their agency force of 45,000 agents and also the broker community of approximately 70 as their sole income source is selling insurance.

It must be emphasised that the policyholder is the lifeline of the insurance industry and if their interest is effectively and confidently protected with the provision of the best possible service, the industry will grow and as a result penetration levels will automatically increase.

As a sensible regulatory body, it is not prudent to permit unauthorised platforms to continue such businesses that offer little to no service, where no policy documents are given, no claim procedures are stipulated, no awareness is created amongst beneficiaries and most importantly where billions of rupees from vulnerable communities in the society is collected without proper regulation by the Government regulatory body.

(Views in this column are personal and as an insurance consultant and do not reflect those of any organisations the writer is associated with.)