On 16th April 2012, The Insurance Regulatory and Development Authority (IRDA) released an exposure draft of regulations for standard proposal form in life insurance. In continuation to prescribing standards for Needs Analysis in Life Insurance, the IRDA has now proposed a standard proposal form for individual policies in life insurance that shall have a section on Needs Analysis.
The regulator mentioned that it is not being prescriptive about any particular matrix or model but the idea is to have in place a process and system to assess the Needs Analysis for each and every proposal received. IRDA wants every insurance company to verify the soundness of a recommendation made to the customer about a particular product.
The draft document released by IRDA stated that the objective of this 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.’
In the last few years, there have been several instances of mis-selling where customers complain that they were not given the complete policy details by the insurer. Many policyholders state that they were sold a policy which was different from their need. To address all these and many other issues, IRDA has floated this idea of having a standard application form which will ensure that all customer needs are known to the insurance company before issuing the policy.
These regulations will be applicable to all policies issued by life insurance companies irrespective of the type of product such as term, money back or unit-linked plan. The regulator also mentions in the draft that the insurance company has to put a supervision system that is reasonably designed to achieve compliance with these guidelines. It looks like a good step towards protection of customer’s interests even though it can make the entire application process a little tedious for the insurance company.