In order to make insurance intermediaries such as agents and brokers more accountable and reduce instances of mis-selling, IRDAI has asked insurance agents to ensure that they sell policies based on product suitability parameters such as risk appetite and financial goals of their clients.
In fact, agents will have to justify product suitability before selling it to clients.
While suitability analysis has been there for quite some time, it was not mandatory for agents to ensure product suitability. As a result, most agents skip this section in the proposal form.
With the new regulations, insurance companies cannot issue a policy until their agents ensure that the policy is sold after suitability analysis.
Such a suitability will have to be ascertained through a series of questions such as age, income, family status, life stage, financial and family goals, investment objectives, insurance portfolio already held and so on.
According to IRDAI, suitability is determination based on information collected at the time of sale. Such a determination should be based on prospect’s risk profile, financial situation and investment objectives.
However, agents can skip this requirement only if they get a written consent from policyholders saying that they have consciously chosen to bypass suitability module despite recommendation of their agents.
On benefit illustration, agents will have to clearly state what the policy is all about. Agents and insurance companies can give benefit illustration by taking 4% and 8% return into account. Also, agents are required the sign the benefit illustration form along with policyholder to ensure that they have not lured investors with attractive returns.
In addition, agents will have to clearly state what is guaranteed and non-guaranteed benefits attached to a policy.
