Cracking the Whip

Last week, there was news that IRDA is going to crack the whip at ‘Traditional Plans’. It appears that after the last round of whip cracking (which was on ULIPs), our insurance industry has transformed its traditional plans into something which needs a whip. The regulator’s major objections appear to be that these insurance plans don’t actually contain much insurance and in many of them, whatever little insurance there is actually declines as time goes by.

When I say insurance, I mean insurance cover, as in the amount your family will get when you, the policyholder, dies. Given the paucity of actual insurance in Indian insurance products, it’s better to clarify. It’s great that the IRDA is keeping abuses in check. The reigning in of ULIPs and now of traditional plans will no doubt benefit future consumers, although those who are already locked will have to wait for their suffering to end.

However, it’s of vastly greater importance for someone to give serious thought as to how this cycle of mis-designed products and whip-cracking will end. I’m using the word ‘mis-designed’ deliberately to contrast it with ‘mis-selling’ which has become something of a cliché while talking about insurance products in India. ‘Mis-selling’ is everyone’s favourite evil, but it implies that the fault lies with the intermediary who is doing the selling. In reality, it’s the products themselves that are mis-designed, and are not suitable for anyone.

It makes one wonder why mis-selling can’t be given an objective definition. Here’s a possible one: Make it illegal for anyone who doesn’t have life cover equal to at least five years’ income to be sold any other insurance product. Once that is done only then can he or she be sold the inevitable artfully mis-designed pseudo-insurance products. It would at least ensure that insurers can do no harm before they have done some good to their customers.