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This is in continuation of the consultation process involving a Discussion Paper dated 18th June, 2010 regarding prescribing standards for Needs Analysis in Life Insurance and the Exposure Draft dated 31.01.12 on Guidelines on Prospect Product Matrix as a process of assessing Needs Analysis.
Feedback received from various stakeholders to the exposure draft on Guidelines on Prospect Product Matrix has been examined. The Authority now proposes regulations relating to prescription of a standard proposal form for individual policies in life insurance that shall have a section on Needs Analysis.
While not being prescriptive about any particular matrix or model, the regulations envisage requiring insurers to have in place a process and system to assess the Needs Analysis carried out for each and every proposal received and the soundness of a Recommendation about a particular product being made.
Feedback on the draft regulations may be sent to on or before 15th May, 2012.




I. PurposeThe purpose of these regulations is to provide for a standard proposal form for individual policies in Life Insurance that has an inbuilt flexibility for seeking additional /specialized information that is product specific or specific to a particular risk category. The regulations provide for a standard format that consists of four parts, namely (A) Details of the prospect (B). Specialised/Additional information. (C).  Needs of the prospect.  (D). Recommendation, apart from the required declarations. Sections A, C and D are standard and compulsory and Section B may be modified as required. A separate form is to be collected for each individual life proposed.

II. Objective:II.1. The Objective of the Regulations is to introduce a standard proposal form that not only brings in uniformity in  information sought but also ensures that it takes into consideration all relevant questions that are required to understand the need for a particular product and make a recommendation to the prospect that is based on ‘suitability’ in a simple and straightforward manner bringing in transparency and thereby protecting his/her interests.

II.2. Authority:These regulations are issued in terms of the powers vested upon the Authority under Section 14 (b) of the Insurance Regulatory and Development Authority Act, 1999. They are complementary to the provisions relating to the proposal form provided for under the law , rules and regulations, in particular Sections 45 and 51 of the Insurance Act, 1938 and Regulations 7 (d) and 4 of the IRDA Regulations for Protection of Policyholders’ Interests, 2002 and Rule 12 of the Insurance Rules, 1939.

III.  Applicability and ScopeThe regulations apply to all individual policies issued by life insurance companies , irrespective of the segment and type of product.

IV. Definitions:

IV.1. Recommendation: ‘Recommendation’ means advice provided by an agent or broker or an insurer where no agent or broker is involved, to an individual consumer that results in a purchase of a life insurance policy in accordance with that advice.

IV.2. Suitability: ‘Suitability’ is a determination that, based upon a particular prospect’s risk profile, financial situation, investment objectives and investment experience, a product is appropriate for that prospect. This is based on the data collected under the Needs Analysis section of the standard proposal form.

IV.3. Standard Proposal form: Proposal form format as provided under Annexure A of these Regulations.

V.   Obligations of Insurers, Agents and Brokers to determine suitability:V.1. An Insurer or Agent or Broker shall make reasonable efforts to obtain a consumer’s suitability information prior to making a recommendation. Suitability information means information that is reasonably appropriate to determine the suitability of a recommendation as provided for in the standard proposal form.

V.2. Based on the suitability of information gathered from the prospect, the Insurer or Agent or Broker must have reasonable grounds to believe that the product being recommended to the prospect is suitable for him/her.

V.3. In recommending the purchase of a life insurance product, the Insurer or Agent or Broker shall ensure the following:

(a). The prospect has been informed of the various products available and the details of the various features of the particular product being recommended. This would include and not be limited to the benefits, the various charges such as surrender charge, administration and all other charges as applicable, market risks etc—in other words all relevant features of the product necessary for the prospect to make the right decision.

(b). The insurer or agent or broker believes that a particular product would suit the needs of the prospect and that the prospect would benefit from purchasing such a product.

V.4. It shall be mandatory for all life insurance companies to adopt the standard Proposal  form .

VI. Insurers to establish supervisory procedures:

VI.1. An insurer shall establish a supervision system that is reasonably designed to achieve compliance with these guidelines including but not limited to the following:

(a). The insurer shall maintain reasonable procedures to inform insurance agents and brokers of the requirements of these guidelines and of the standard proposal form  needs to be collected for the purpose of needs  analysis and making a recommendation.

(b). The insurance agents and brokers shall be adequately trained to determine suitability.

(c). The insurer shall maintain procedures for review of each recommendation prior to issuance of a product that is designed to ensure that there is a reasonable basis to determine that a recommendation is suitable. Such review procedures shall include a screening system for the purpose of identifying selected sale transacitons for a detailed review. Such review may be accomplished electronically or through other means including but not limited to physical review.

(d). The insurer shall maintain reasonable procedures to detect recommendations that are not suitable. This may include, but is not limited to, confirmation of suitability information, systematic consumer surveys, verification calls or interviews, confirmation letters and programs of internal monitoring. An insurer may apply sampling procedures for confirming suitability information after issuance or delivery of the product.

VII. Record keeping:

VII.1. Insurers, agents and brokers shall maintain and make available to the Authority records of information collected from the prospect and other information used in making the recommendations that were the basis for insurance transactions for five years after the insurance transaction is completed by the insurer.

VIII.2. The records may be maintained in physical or electronic form or any process that accurately reproduces the actual document and can stand legal scrutiny.

VIII. Training

Agents shall be adequately trained on seeking information for needs analysis.  Brokers shall also be given the necessary inputs for sale of the products of a particular insurer. Further, insurer shall ensure that agents, brokers and direct sales personnel are given thorough training regarding the various specific products of the insurance company.

IX. Effective Date/Compliance Date

These guidelines shall take effect from 1st September, 2012.

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