Concerns about compliance with IRDAI regulations by insurance companies

by Sumant Prashant and Renuka Sane

Before choosing to buy any product, we want to know what the product is actually offering for the price, and how it suits our requirement and taste. For this comparison to work, we need information that a) describes truthfully all the features, or at least the material features, of the product and b) allows us to compare similar features across competing products. As the Bose Committee Report pointed out, when a financial, and especially an insurance product advertises its product features, it is not clear that the advertisement correctly represents the product. Sometimes advertisements are blatantly misleading. Sometimes, they are just hard to decipher. This environment of opaque disclosures has contributed to episodes of mis-selling, and losses to customers.

To address the problem of misleading advertisements, IRDAI issued a Master Circular on advertisements on 13th August 2015. The Master Circular aims to achieve two objectives - (a) make advertisements/sales material more accurate, comprehensive and reliable for the benefit of insuring public and; (b) set out minimum standards to be followed by all insurance companies for advertising and soliciting insurance business. In this article we summarise the Circular, and evaluate compliance by five randomly picked advertisements.

The IRDAI Master Circular on Advertisements

The Master Circular divides advertisements into two categories based on their intended purpose:

• Institutional Advertisements are meant to promote the brand image of the insurer company.
  
  
• Insurance Advertisements are meant to solicit insurance business and therefore provide more details about the product, such as name and benefits of the product and financial performance of the insurer company. Insurance Advertisements are further divided as
  
  
  • Invitation to Inquire advertisements, which only provide basic information about the product and advise the customer to refer to a more detailed brochure.
    
    
  • Invitation to contract advertisements, which contain detailed information about insurance products and induces prospective or existing consumers to purchase them.
    
    

Of these, Insurance Advertisements are critical in influencing the purchase decision of a customer. They also have the potential of being misused by insurance companies through projection of exaggerated benefits or non-disclosure of important terms and conditions of a product. The Master Circular, therefore, provides detailed do's and dont's for Insurance Advertisements. Some of the requirements for an advertisement are:

1. The product should be identifiable as an insurance product, disclose risks, limitations and exclusions of the product.
   
   
2. The benefits of a guarantee, when advertised, should also mention the cost and charges of the guarantee. If conditions of guarantee are elaborate, the advertisement should be accompanied by conditions applicable to the guarantee in specific font size.
   
   
3. If promise, projection or past performance are mentioned, this should be accompanied by assumptions, sources of information and the statement that past performance is not an indication of future performance.
   
   
4. If tax benefits are mentioned, this should be accompanied by statement that tax laws are subject to change.
   
   
5. If a ranking or award is advertised, this should have been awarded by an agency independent of the insurance company which is advertising.
   
   
6. Viewers of Internet advertisements should be able to view all the key features of the product.
   
   
7. Insurer's website should flash a cautionary notice about spurious calls and fictitious offers.
   
   
8. In case of ULIPs, the asset mix of various underlying funds, approved asset composition and pattern should be placed on website on half yearly basis.
   
   
9. In promoting product combinations, all particulars of each product should be disclosed with an advice to refer to the sales brochure.
   
   

Evaluating Compliance

We examined 5 advertisements posted recently on the Facebook pages of leading insurance companies that fall into invitation to inquire category of advertisements, to ascertain the effectiveness of the Master Circular. Though these advertisements provide a weblink through which more details about the products can be accessed, they still have to comply with requirements of the invitation to inquire category of advertisements. The requirements placed by IRDA of these advertisements is less demanding, relative to the invitation to contract category of advertisements. We also focus on those aspects of the Master Circular that are clearly written and leave no ambiguity regarding their interpretation. The Table below shows how well the five advertisements we studied comply with the Master Circular. We find that:

1. Some of the requirements which seem easy to implement, like mentioning the registration and UIN number have not been satisfied.
   
   
2. Some advertisements did not mention that the product is an insurance product.
   
   
3. Some advertisements did not publish an unique identifiable reference number.
   
   
4. Some of advertisements did not follow the font and appearance requirement provided in the Master Circular.
   
   
5. Some advertisements did not include the disclaimer mandatorily required by regulations.
   

Here is the summary of the analysis of five advertisements:

	AD 1	AD 2	AD 3	AD 4	AD 5
Registration number	No	No	No	No	Yes
Product identified as insurance product	Yes	Yes	No	Yes	Yes
Unique Identifiable reference number	Yes	No	No	No	Yes
Mandatory disclaimer	No	No	No	No	Yes
Font	N.A.	N.A.	N.A.	No	Yes

N.A. means "Not Applicable"

Conclusion

Many insurance companies appear to be violating the IRDAI Master Circular on Advertisements.