Birla Sun Life official questions dual pricing of insurance policies
In his petition Mahtani suggests that IRDA should step in to regulate the rates offered by direct marketing verticals of insurance companies. I
The practice of charging lower premium to customers who bypass agents to buy policies directly from life companies can not only cause serious disruption, it is also “unfair”, “unethical” and violates a key provision of Insurance Act 1938, according to the petitioner Prakash Mahtani, managing partner at Birla Sun Life — a joint-venture between Aditya Birla group and Sun Life Financial Inc of Canada.
A discounted premium is a “rebate in disguise” which law prohibits, said the Birla Sun Life official who has been with the company for 16-plus years.
Almost all insurance companies (including Birla Sun Life) have differential pricing. Every product filed with Insurance Regulatory & Development Authority (IRDA) has dual pricing — one for offline purchase and the other for online. When a company directly sells to customers, IRDA insists that companies need to pass on the benefit.
Thus, while there are no discounts on premiums on policies sold by intermediaries like individual agents, corporate agents, banks and insurance brokers, the rate could be 2% to 10% lower on those sold by ‘direct marketing teams’ of insurance companies. With companies aggressively pushing direct marketing, Mahtani — who has put out his views and suggestions on the petition website change.org — believes that such predatory pricing could severely hurt the insurance industry in the near term, besides impacting 2.2 million intermediaries who for decades have been the backbone of the industry, helping it to expand the insurance market.
It is not known how Mahtani’s petition has gone down within Birla Sun Life. Mahtani did not comment on the matter while a company spokesperson said: “The petition has been filed by Mr. Prakash Mehtani in his personal capacity and does not represent the views of the company. Birla Sun Life Insurance Company Limited practices are always aligned with the industry and regulations prescribed by the regulator.” Out of Birla’s 20 products, more than 15 carry direct marketing discount. The online petition, floated a few a months ago, was reactivated recently with the company official posting it on Facebook. Mahtani, however, has added a disclaimer, clarifying that the views and opinions expressed in the petition are solely his and do not reflect the official position or views of any company.
Online sales generated 1% of the premium in FY16 and more than 2% in health insurance sales, but is said to be growing at a fast clip. Direct marketing is catching on in offerings like term insurance (or pure protection plan), unit-linked products, as well as in savings-based traditional products like endowments. In the past six months, insurers have intensified their focus on direct sales.
An industry official who has read the petition said, “Mahtani is not against companies competing with each other. What he seems to be objecting is a company charging two prices for the same product to two different customers – online and offline.”
In his petition Mahtani suggests that IRDA should step in to regulate the rates offered by direct marketing verticals of insurance companies. IRDA, however, has taken the Sebi approach on the subject: the capital market regulator has permitted lower charges on direct sale of mutual funds. “But mutual fund is a very different product and there is no law that is against such dual pricing or charges on MF schemes,” said the person.