IRDA to check mis-selling of Ulips by agents

MUMBAI: Insurance Regulatory and Development Authority (IRDA) will soon take measures to counter mis-selling of unit-linked insurance plans (Ulips) by insurance agents. The regulator has come across numerous cases, where agents have lured prospects by misrepresenting the nature of returns that can be earned from unit-linked policies, which has caused concern.

Among the measures planned are a revision of the commission structure, a declaration from the agent of the list of items that have disclosed to the prospect, and an attestment from the prospect that he has fully understood the implications of his investment decisions. In a rising market, agents find it easy to mis-sell unit-linked plans, as they draw up illustrations based on past performance.

For instance, an agent may claim that the policy has generated a 50% return in one year on the back of the stock market boom and project future earnings assuming a high annual return of around 25%. In reality, agents cannot give indicative returns of more than 10% a year, which is a reasonable return expected from equity investments over a long-term period.

“In spite of these guidelines, there are complaints that there is a mis-selling of products, and agents promise returns far in excess of what is permitted to be stated and non-disclosure relating to risks that policyholders have to bear,” said IRDA chairman CS Rao. Mr Rao was delivering the AD Shroff Memorial Lecture in Mumbai on Friday on the progress of the insurance industry since liberalisation in 2000. Post-liberalisation, Ulips have been driving the growth in the life insurance business which has recorded a compounded growth of 45%. At present, most of the premium income for the industry, including market leader Life Insurance Corporation, comes from sale of Ulips.

Although most companies have brought down commissions on Ulips, there are still some insurers who provide a higher incentive of around 35% in the first year to push Ulips. Earlier this year, IRDA, for the first time, took major action on mis-selling after an insurance advisor attempted to sell a unit-linked policy to IRDA officials with unrealistic projections. In other markets, every illustration made by an agent has to be authorised and signed by the insurance company. There is a possibility that similar practice could be introduced in India

Regulators across the world feel the customer discretion is warranted in the case of Ulips since the customer chooses the investment and consequently bears the risk of his investment. In traditional policies, the risk was very low since the regulator made sure that investment went into safe instruments. To ensure that policyholders take informed decisions on Ulips, the regulator had introduced guidelines for Ulips that required insurance companies to be more transparent of the risks and impact of charges.