This content is from: Local Insights

To bundle or not to bundle

On February 5 2012, India's insurance sector regulator, the Insurance Regulatory and Development Authority (Irda), released a discussion paper to assess whether the bundling of insurance cover should be continued.

The discussion paper recognises the importance of the distributor in influencing the buyer's decision in insurance sales. The concern highlighted in the discussion paper is that bundling may lead to conflict of interest situations and/or forced sales or mis-selling. Irda views this as significant where retailers of goods or services sell insurance policies along with their product as corporate agents and/or by an insurance brokerage which is part of the same group as the retailer.

Car dealers, retailers, credit card agencies, travel agents and airlines often sell bundled insurance cover, and the existing framework permits such activity. Irda is concerned that policyholders could be vulnerable to unfair practices when forced bundling thrusts insurance products upon them. The recent guidelines issued by Irda on outsourcing seem to have addressed to some extent the concerns relating to conflicts due to outsourcing. Irda had expressed its concern in outsourcing of certain activities by insurers where there is delegation not only of administrative activities but also underwriting and claims-related activities to the distribution channels.

Irda has observed that intermediaries such as mutual funds are tying insurance products of a group entity with their investment products. Irda also seems concerned about the advertisement of such insurance products where the insurance cover may be positioned as the main or key feature of the product rather than an incidental one.

Although there have been no reports of any serious or high volume of complaints in this regard, Irda seems to be taking the issue seriously. The discussion paper seems to suggest that Irda is inclined to allow the practice to continue with certain restrictions. However, the possibility of an outright ban on the sale of bundled insurance policies cannot be ruled out entirely.

The concerns highlighted by the discussion paper are such that they need to be addressed effectively. It should be kept in mind, though, that a facility of a single point for buying insurance at the time of buying the main product or service is of great convenience to consumers. The balance of convenience with respect to damage being caused, if any, should be evaluated before taking any action.

All things considered, the best course of action may be to allow the practice with adequate checks. Perhaps a balanced restriction could be that of giving consumers the choice to buy by opting in rather that by having to opt out if they do not want the cover. Also, to allow decision-making in a meaningful manner a comparison may be given. For tackling the issue of 'white labeling' of certain policies, adequate disclosures may be prescribed to ensure transparency. Further, it may be counterproductive to club all type of bundling together as so-called white-labelling. Sale of car insurance at the time of sale of cars is a classic case in point. This should not be treated on par with selling accident cover by airlines when buying tickets online or when checking in.

Irda is still receiving public comments on the proposals and it will have to be seen which way the regulator will finally go. Watch this space for further updates on the issue.

Shuchita Bhushan and Arunabh Choudhary

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