18 JUN 2010
AENTS MUST DO NEEDS ANALYSIS AS PERPRESCRIBED STANDARDS BEFORE
SELLING A POLICY
IRDA WILL ISSUE
REGULATIONS
In the insurance sector, like in any other financial service sector, keeping the vulnerable public protected from unfair practices is of utmost importance. Unfair practices could arise in a scenario of increasing number of insurers, intermediaries and insurance products and severe competition for business. To address these concerns, IRDA already has in place regulations laid down for intermediaries, which among others address issues relating to the point of sale. IRDA also requires that the agents and brokers and all those intermediaries having the function of sales, are properly qualified and trained.
On the responsibility of the intermediaries to take into account the needs of the prospect while giving advice, the following provisions already exist in the various relevant regulations:
Every insurance agent shall disseminate the
requisite information in respect of insurance products offered for sale by his
insurer and take into account the needs of the prospect while recommending a
specific insurance plan.”
Under the Code of Conduct prescribed by IRDA regulations for brokers it is stated that “Every insurance broker shall ensure that the policy proposed is suitable to the needs of the prospective client.”
Hence, IRDA Regulations already stipulate that intermediaries have to study the needs of a prospect before recommending a particular insurance policy/product. This requirement is termed as Need analysis in certain jurisdictions and Suitability Analysis in certain others.
Today, the IRDA Regulations address the concept of Needs Analysis in a general way. There is, however, scope to modify and improve upon the existing provisions in order to ensure that the prospects are guided properly to take informed decisions regarding insurance products.
(a). Is it
sufficient to require (in a general
way) to ensure that the needs of the client are taken care of ? Perhaps there
is a need to be more specific. There is a need to set standards and procedures for
Needs
Analysis before an intermediary makes a recommendation to a prospect
about a particular product.
(b). Ideally, it should be the insurer’s responsibility to monitor this role of the intermediaries. Hence, IRDA should require insurers to establish a system to supervise the recommendations made to customers by intermediaries so that the insurance needs and financial objectives of consumers are adequately addressed. In case of brokers, it should be the responsibility of the insurer to review the recommendations made by them to the client when responding to request for insurance. However, the standards themselves should be set by the IRDA in the form of additions/modifications to the IRDA Regulations for Protection of Policyholders Interests.
Why is a Needs Analysis required? Generally, consumers do not have enough information to determine whether the product recommended to them is the ideal one. Not only would they not know if it was ideal or not, they quite often would not have understood what their commitments to pay premiums / various charges are nor would they have understood how exactly the policy works and what the benefits and or returns would be. While it is required of intermediaries to give complete information including benefit illustrations about the product recommended at the point of sale, a structured Needs Analysis that takes into account factors such as age, annual income, financial situation and needs, investment objectives, intended use of the policy benefits/returns, financial time horizon, existing assets and insurance policies, liquidity needs, tolerance for fluctuations in value of the fund, tax status etc is necessary to ensure that the product recommended is most suitable for the prospect.
Recommendations:
It is therefore proposed to amend the IRDA Regulations for Protection of Policyholders Interests to include provisions for the necessity of preparation of a Needs Analysis document by the agent/broker, as applicable.
a) The proposed provisions would prescribe the factors to be taken into account by the agent/broker for preparing the Needs Analysis format, as indicated in the draft format attached to this document.
b) Where a prospect refuses to co-operate in giving information for the required analysis, it must be recorded by the agent and counter checked and recorded by the insurer and in all such cases, the agent/broker shall be given exemption from preparation of the Needs Analysis document.
c) There should be proper monitoring of implementation of Needs Analysis by insurers of all the intermediaries they deal through. Insurers shall record the presence/absence of a duly filled in Needs Analysis Document in respect of every proposal they receive.
d) Training curriculum for intermediaries should give high priority to Needs Analysis. The respective provisos in the Regulations for Brokers, Agents and Corporate agents would also need to be modified suitably simultaneously.
Agency /
Broker Name :
Licence No.
& Validity Details :
DETAILS OF PROSPECT
|
1. Basic
Information |
|
|
Name |
|
|
Address |
|
|
Telephone
( Landline/Mobile) |
|
|
E-mail
id |
|
|
Date
of birth |
|
|
Marital
status |
|
|
State
of health |
Excellent/Very good/Good/Moderate/Poor |
|
Smoker |
Yes/No |
|
2. Family details |
|||||
|
Number
of dependants |
|
||||
|
Details
of dependants |
1 |
2 |
3 |
4 |
5 |
|
Name |
|
|
|
|
|
|
Male/Female |
|
|
|
|
|
|
Relationship |
|
|
|
|
|
|
Age |
|
|
|
|
|
|
Date
of Birth |
|
|
|
|
|
|
State
of health ( Excellent/Very good/Good/Moderate/Poor) |
|
|
|
|
|
|
Occupation |
|
|
|
|
|
|
Whether
financially dependent |
|
|
|
|
|
|
Any
scope for expansion of family |
Yes/No |
||||
|
3. Employment details |
|
|
Occupation |
|
|
Length
of service |
|
|
Annual
income |
|
|
Whether
covered under pension scheme |
|
|
Normal
retirement age |
|
|
4. Existing insurance |
|||||
|
Name of
Member |
|
|
|
|
|
|
Life |
|
|
|
|
|
|
Health |
|
|
|
|
|
|
Savings
and Investment |
|
|
|
|
|
|
Pension |
|
|
|
|
|
|
Other
( to specify) |
|
|
|
|
|
|
5. Financial details |
|
|
Value
of savings and assets |
|
|
Details
of liabilities |
|
|
Expected inheritance |
|
|
6. Pension details |
|
|
Employer's
Scheme/Insurance |
|
|
Personal
contribution/Premium |
|
|
Retirement
age |
|
|
Anticipated
value |
|
|
7.
Income/Expenditure --Current and projected |
||||||||||
|
YEAR |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
Income |
|
|
|
|
|
|
|
|
|
|
|
Expenditure |
|
|
|
|
|
|
|
|
|
|
|
8.
Affordable contribution—Current and
projected |
||||||||||
|
YEAR |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
Yearly |
|
|
|
|
|
|
|
|
|
|
|
Monthly |
|
|
|
|
|
|
|
|
|
|
|
9.
Identified
Life needs |
Projections per
annum |
|||||||||
|
ITEM/YEAR |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|
Food, shelter, clothing
and other living expenses such as transportation ,expenses, utilities
etc |
|
|
|
|
|
|
|
|
|
|
|
Education |
|
|
|
|
|
|
|
|
|
|
|
Vacations and other travel expenses |
|
|
|
|
|
|
|
|
|
|
|
Other commitments such as insurance premium, various
contributions etc |
|
|
|
|
|
|
|
|
|
|
|
Exigencies |
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
|
|
|
|
|
|
|
|
10. Identified
insurance needs |
|
|
Life Insurance (
Death/Maturity) |
|
|
Desirable Sum Assured |
|
|
Health Insurance |
|
|
Desirable limit of coverage per annum |
|
|
Savings and Investment Planning |
|
|
Desirable returns
per annum |
|
|
Pension planning |
|
|
Desirable
pension per annum |
|
|
11. Recommendation: |
|
|
1. Life stage |
Childhood/Young
unmarried/Young married/ Young married with children/married with older
children/post-family or pre-retirement/retirement |
|
2. Protection
needs |
Life &
Health/Savings and Investment/Pension |
|
3. Appetite for
risk |
Low/Medium/High |
|
4. Policy
recommended, including name of insurer |
|
|
5. Details of
commitment for the current and future years |
|
|
6. Whether risk
element, if any, explained and Key Features Document handed over |
|
|
7. Why you think
this policy is most suited for the prospect |
|
Note: Mention ‘in Rs’
etc wherever applicable
Agent/Broker’s
Certification:
I /We hereby certify that I/we believe that the product
recommended me/us above is suitable for
the prospect, based on the information submitted by him/her, as recorded above.
Dated:________________ __________________
(
Signature of Agent/Broker)
Prospect’s
Acknowledgement:
The above recommendation is based on the information provided
by me. I have been explained about the features of the product and believe it
would be suitable for me based on my insurance needs and financial objectives.
Dated:________________
__________________
( Signature of Prospect)