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Buying a car? Your dealer will choose your auto insurer. Going on a holiday? The price includes the cost of travel insurance. For several years now, Indians have been sold insurance bundled with other products or services. Even home loan customers are sometimes forced to take a loan protection term cover. But the insurance regulator is not happy with this combo selling. In a discussion paper released this month, the Insurance Regulatory and Development Authority (Irda) has expressed concerns that this bundling forces consumers to buy products they don't want and allows dealers to push policies that earn them better commissions even though they might not suit the buyer.
The lack of transparency in such products has got Irda worried about these policies. When the insurance cover is clubbed with another good or service, the buyer doesn't get to know how much he has paid for the insurance. Be it the charges of the cover or the features of the policy, it is difficult for a buyer to know if he's getting his money's worth. Car insurance that comes with a new car. "Many dealers offer the first year's insurance for free or for just one rupee. But this is not true and the cost of the insurance is actually built into the car price. So, you don't know if you are paying the correct price," he says.
Does the customer know?
The transparency of charges is not the only thing that has Irda frowning over these bundled covers. The regulator is also concerned that when one cover is bundled with another good or service, people may not understand the policy that they have bought.
Take the health covers that come bundled with credit cards. Though people think that they are covered for hospitalisation, most such covers are only protection against loss of income due to hospitalisation. So while you would pay almost as much as any proper health cover, you get only a fraction of the protection
Forced selling
Forced selling is another concern raised by the insurance regulator. When a dealer has an upper hand in providing you a particular good or service, he can also force you to buy insurance from a certain company. This is particularly true of tour operators who bundle travel insurance in the total cost of the package. With a bundled cover, there is no opportunity to compare a policy with other options available in the market. So, you do not get a chance to select the best insurance offer. Nobody has the right to force customers to buy certain plans.
Confusing the buyer
The practice of highlighting the insurance cover to sell other products has also come under the scanner. Some mutual funds are offering life insurance if you continue your SIPs in select funds for the agreed tenure. However, Irda is not happy that the fund houses are putting too much stress on the insurance component. Insurance is only a fringe benefit while the core product is the SIP in the mutual fund. By harping too much on life insurance, they will confuse the investor and make it difficult for him to differentiate between the core and the incidental product.
Bundled policies are also not good for the insurance industry. When there is a distribution nexus between the insurance companies and dealers, the company may agree to accept all damage claims. So while the dealer benefits with car repairs, the insurance company would actually bleed. The industry is already bleeding and I don't see why they would want to continue with such practices. Maybe this is why the regulator is looking to curb these policies.
However, not all bundled covers are unsuitable, and hence it would not be advisable to completely abolish such plans. "Some bundled covers like term plans with critical illness covers or travel insurance with tickets are quite good. So, Irda must segregate the good from the bad and come up with more stringent regulations. These insurance covers are not bad per se. Irda is only concerned about the way they are distributed.
Irda needs to ensure two basic things. The first is transparency in these covers. Secondly, it should not be mandatory to purchase these covers. The regulator has asked for comments on the discussion paper till 15 March before it takes a final decision on the matter.
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- HDFC TaxSaver
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- Birla Sun Life Tax Relief '96
- Reliance Tax Saver (ELSS) Fund
- IDFC Tax Advantage (ELSS) Fund
- SBI Magnum Tax Gain Scheme 1993
- Sundaram Tax Saver
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