Published in Mint, on 10th May 2017
Insurance Regulatory and Development Authority of India (Irdai), in a gazette notification dated 13 April, laid down the rules for insurance web aggregators: Irdai (Insurance Web Aggregators) Regulations, 2017. According to the aggregators we spoke to, these regulations do not cause any major disruption, as they mainly aim to tackle the ambiguities.
However, three changes to the rules are noteworthy. First, the rules now allow all kinds of insurance products to be sold on the web aggregators’ portals. Earlier, unit linked insurance plans (Ulips) were not allowed. Two, the ticket size of the policies that can be sold here has been increased from Rs50,000 to Rs1.5 lakh, giving a fillip to bundled life insurance policies. Three, the rules now allow remuneration even on zero-commission policies, such as the online term plans, through rewards.
But before we get into the details of these changes, let’s start by understanding the role of a web aggregator.
What is a web aggregator?
Classified as insurance intermediaries, web aggregators are portals that help you compare and buy insurance products. They further improve the purchase experience by either directing you to the insurer’s website or helping you through the sale process.
The primary role of these portals is to enable comparison. In that sense, they provide a listing of products and showcase comparison on parameters such as: eligibility criteria, sum assured and premiums. As per the rules, web aggregators need to display product pricing that is inclusive of all taxes. Further, the rules prohibit web aggregators from displaying ratings, rankings, endorsements or ‘bestselling’ insurance products. They are also to refrain from commenting on insurers or their products at any location in their websites.
Web aggregators have played an important role in boosting the online market for several products, such as term plans. “Comparison is essential for the customers and we have seen in the case of online products, such as the term plans, that over 90% of the customers compare and buy them through web aggregators,” said Deepak Yohannan, founder and chief executive officer, Myinsuranceclub.com.
More products on display
And now, with the changes to the rules, one can expect that Ulips, too, would get a boost online. A few insurers already have Ulips online. “Investment products have not been popular with web aggregators because the regulations prohibited us from selling Ulips; and the traditional investment products are complex, making them unsuitable for online sale. But now we will be able to sell Ulips and given that Ulips are becoming popular once again, this is a welcome move,” said Naval Goel, founder and chief executive officer, PolicyX.com.
What will further help aggregators is the hike in premium ceilings. Currently, web aggregators are not allowed to solicit insurance policies where annual premiums exceed Rs50,000. As per the new regulations, the new limit is Rs1.5 lakh. Remember that life insurance policies qualify for a tax deduction of up to Rs1.5 lakh under section 80C of the Income-tax Act, 1961. “The earlier limit of Rs50,000 was very low but now the entire tax limit is covered. So, all investment products up to the full tax limit will be available through the web aggregators,” said Yashish Dahiya, chief executive officer and co-founder, Policybazaar.com.
Changes in remuneration
Apart from more products to sell, the regulations also bring good news for web aggregators on the issue of remuneration.
First, in the non-life space—regarding general insurance products such as health insurance, motor insurance and home insurance policies—it has now been clarified that web aggregators are entitled to renewal commissions as well.
However, for life insurance policies, they are still not allowed the renewal commissions as they are long-term contracts. So, when they sell a life insurance policy, web aggregators are entitled to first-year commission only—remember that commissions in life insurance are front loaded. “General insurance products are annual contracts and every time the policy is renewed, there is a new policy number assigned to the policyholder. This means that web aggregators are entitled to renewal commissions, but it was a huge grey area and many insurers interpreted the rules differently,” said Alok Bhatnagar, co-founder and chief executive officer, EasyPolicy.com.
In the life insurance space, the rules now even allow for zero commissions products remuneration, in the form of rewards. As per the new rules on commissions, which were announced in December last year, insurers can pay extra—over and above commissions—to distributors through rewards. The reward, however, is capped at 20% of first-year commission and is for intermediaries who primarily sell insurance. “Allowing rewards brings in transparency and regulates the amount that can go to intermediaries. However, there is still considerable flexibility for web aggregators as they can engage in other activities such as outsourcing. This is currently not at par with rules for other intermediaries,” said Kapil Mehta, co-founder, SecureNow Insurance Brokers Pvt. Ltd.
While the current rules don’t allow commissions for pure online products, the industry practice has been to compensate web aggregators under different cost heads such as by paying them a fee for outsourcing activities. These regulations, in that sense, have acknowledged these activities and formalised these payments. This, however, will not hike prices. “The regulator has acknowledged the role of intermediaries in expanding the online platform,” said Bhatnagar. However, as the rewards will usually be a part of the companies’ marketing budgets, allowing them is unlikely to result in higher prices for the products, he added.
As per Goel, web aggregators account for less than 1% of the total insurance sale and these guidelines will boost greater participation by the web aggregators. Currently there are around 21 web aggregators.
Published in Mint, on 10th May 2017