Exposure Draft, dated 4-6-2010
In line with the nation’s approach to economic reforms, the IRDA has initiated reform measures around the principle of sustainable growth along with public accountability. Therefore protecting the interests of policyholders is the main mission of IRDA and the Authority’s efforts have been constantly directed towards this end.
In 2002, the Authority brought out the IRDA (Protection of Policyholders’ Interest) Regulations. The Regulations define the obligation of insurers and intermediaries and lay down time-frames for compliance that cover the entire life cycle of a product, starting from its sale to servicing, including at the point of claim.
The opening up of the insurance sector has given insurers the opportunity to bring about many innovative designs and concepts in product development. Spurred by competition triggered by this opportunity, the market has seen a plethora of new products. This has raised new concerns regarding availability of information to prospects and policyholders.
While IRDA has made continuous efforts to demystify complex products by requiring insurers to follow certain guidelines relating to disclosures especially in respect of the new breed of products such as ULIPs and carry out adequate safeguards while advertising about products etc, there is a need to constantly scale up the efforts to ensure that the required information is made available to prospects and policyholders and that the “information gap” between them and the insurers is reduced or removed.
The Authority is sensitive to the fact that information asymmetry is a reality in the market and that it is necessary for all stakeholders to work towards its removal. In this backdrop, the importance of giving policyholders clear and precise information with regard to insurance products needs no further emphasis. The Authority has brought out the IRDA (Insurance Advertisement and Disclosure) Regulations in 2000 to ensure that asymmetry is addressed. It has been IRDA’s constant endeavour to permit only correct, easily understood depiction of the product features. Apart from the Regulations, IRDA has also issued guidelines in this regard.
Ensuring fair treatment to policyholders:
There should be utmost transparency at the time of sale and promotion so that the policyholder is made to feel confident that he or she is being given complete information regarding the product. Provision of clear and complete information about products is not only a fundamental expectation but also a necessity to ensure fair treatment to policyholders by insurance companies. It is a necessary disclosure obligation of insurance companies.
Contractual documents issued by insurers:
Contractual documents developed by insurance companies should take care of the interests of policyholders by giving them the required information in a clear and simple manner. Legal documents are complex and not comprehensible to the insured persons. It is observed that insurance policy documents are long and run into several pages making it almost impossible for policyholders to read them.
While, more than 30% of the Indian population is illiterate, even the literate population will not understand complex legal language. In view of this, providing product information in a simple and easy to understand manner is very crucial.
Key Feature Documents:
To ensure fair treatment to policyholders, it is necessary for insurers to bring out Key Feature Documents in simple language. This document will have the same legal sanction that a comprehensive policy document will have. Towards this end, it is proposed to incorporate a provision in IRDA Regulations for Protection of Policyholders Interests that would require insurance companies to issue Key Feature Documents for various insurance products to policyholders.
Format of Key Feature Document:
It is necessary that the proposed Key Feature Documents are developed in a clear format with an appropriate title and sub-titles that makes it easy for policyholders to comprehend. The language used should be simple. Illustrations relating to cover/benefits offered should be part of the Key Feature Document. The ultimate test of a Key Feature Document is whether or not the target customer for a particular product understands its main features and is able to take a decision as to whether the product is suitable for him/her. A good example of a Key Feature Document is one that clearly captures the aim of the product or in other words, what the product seeks to cover. It would clearly bring out the risks involved for the policyholder and the obligations or commitments required of him/her. A Key Feature document should not be too long as to lose the precision nor should it be too short thereby missing out on key facts. The document should avoid jargon, should be easy to read and most of all be attractive for the consumer to peruse. It should be titled prominently and should use easy to understand language. It should be in at least 14 size font (of Times New Roman, as an indication). Key Feature Document shall be available in local languages depending on the region where the policy holder resides.
It is necessary to have the Key Feature Document as a separate item and not part of other literature. Model Key Feature Documents in respect of 4 products are enclosed as indicative formats to communicate the intention behind the proposed regulations.
Insurers, general public and consumer bodies are requested to respond by 20th June, 2010. E-mails may be forwarded to email@example.com
Encl: Model Key Feature Documents
1. Jeevan Anand
3. Forever Life
2. Wealth Plus
4. Family Care