In a bid to reduce mis-selling and to make those selling insurance accountable, the Insurance Regulatory and Development Authority recently came out with a draft regulation on standardised application form for buying insurance.

Let us dwell briefly on some of its grey areas before this becomes as an Act.

In its current form, the insurer collects basic financial details of the client. The agent submits a confidential report, in which he furnishes details of the personal assets of the prospect along with general health details.

Projecting income and expenses

The proposed application form is comparatively quite exhaustive. In the new form, the buyer has to not only reveal his income details but also give projections of income and expenses for the next 30 years in a block of five years. Much like our cricket matches.

This could be tricky because salaried individuals will find it difficult to predict their income over the next 15-30 years. Imagine the difficulty the self-employed and farmers will face.

Given the financial literacy level in India, this will be a challenge. But it may be possible for them to predict the future expenses based on family needs.

Another concern is that if an individual projects higher income, there may be a situation in which an agent may suggest a higher insurance amount. If the projections are too low, there will be the issue of under-insurance. Either way, it is not good for the policy holder.

Agent's capability

Currently, an insurance agent in the urban areas needs to have a minimum qualification of 10+2. Those selling insurance in rural areas should have passed the 10th standard.

The new form requires insurance agents to give information on asset allocation of clients. It is hard to perceive how the current batch of insurance agents can be expected to give advice on the financial needs of the customers.

Asking agents to fill in a questionnaire of their client's risk appetite and goals, and almost building a financial plan on the basis of the information may also be a tough ask for an agent. Do remember, he has to do this for all clients, even those with smaller premiums. The agent also has to evaluate the details in the new form and certify them. This may not be commensurate with the current commission level and poses a challenge

New Syllabus

IRDA has proposed a new syllabus for insurance agents that are very comprehensive.

Once an agent is trained in this syllabus, it would be easy for him/her to advice clients. In this syllabus, besides insurance, the agents are also being trained in savings products, impact of inflation and taxation, identifying client needs, fact-finding and financial plan.

The new syllabus was introduced in October 2011, and those agents passing out from this scheme may be in a position to cope with the new guidelines.

A point worth considering here is that post-graduates and graduates undergoing training clear the new syllabus quite easily. But the pass percentage of those with lower qualifications is abysmally low. Insurance industry currently has more than 26.5 lakh agents and it is impossible to train all of them before September, 2012 in the new syllabus.

According to industry information, even the development managers are struggling to clear the mock test of new syllabus.

Hence, rather than rushing to implement the new application and asking an agent to certify, it may be wise to implement the changes in a phased manner, first in the urban areas, before moving to the rural areas. Hurried implementation can lead to more complaints and grievances.

At the same time, it is relevant to increase the minimum qualifying standards for the exam. Agents need to possess the capability to understand the changing dynamics of the market and the products that manufacturers are offering.

sureshpartha@thehindu.co.in

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