The move aims to minimize confusion in the minds of distributors as well as investors.
IRDA has mandated insurance companies to enter into an agreement with the promoter group companies for using their trade logos.
The insurance regulator has also mandated insurance companies to put disclosure while using logo of their promoter companies. In this disclosure, the insurance companies should clearly state that mere adoption of logo of the promoter does not convey any inheritance of financial strength and quality of promoter in products and services of the insurer. The guidelines come into effect from October 01, 2014.
Earlier, in an exposure draft on trade logo issued in September 2013, IRDA had pointed out a few issues in the use of logos by the insurance companies - usage of promoter’s logo without any legal agreement, unambiguous payment clause, etc.
The draft exposure stated, “Having no written agreement may be a matter of concern especially in the event of any reputational loss, as shareholders of respective promoter companies may prefer to have their own stand on the quantum of compensation to be sought, thereby, possibly jeopardizing the interests of the policyholders. Also, absence of specific consideration of amount may result in fleecing insurer’s expenses in the case of any unforeseen contingencies. In the event of exit of promoting partner, the costs of building the unique logo may be prohibitive; otherwise the exited partner may charge the insurer exorbitantly.”
In the final guidelines, the insurance regulator has asked insurance companies to mention ‘consideration amount’ so that there was no scope of any arbitrary payments. The amount should be reasonable and according to sound business principles. If there is no consideration, specific mention of this should be made in unambiguous terms, clarified IRDA.
The agreement should have specific caveats on settlement of compensation. It should have specific period of time subject to renewal. Any payouts towards compensation should be remitted from the shareholder’s account.
Meanwhile, IRDA has advised insurance companies to use a distinct logo in order to reduce cost and minimize the confusion in the minds of distributors as well as investors.
The insurance regulator has asked insurance companies to comply with these guidelines by May 04, 2014. As of now, many insurance companies like SBI, ICICI Prudential, Reliance, Kotak and IDBI are using logos of their promoter group companies.