Insurance: Cover Vs. Cover-up

Doesn’t this sound familiar—- an aggressive guy hurls this abuse at you at the end of every Insurance commercial: “Insuranceisasubjectmatterofsolicitation”? And your gut reaction was: “Same to you, one-born-of-a-canine-mother”? I don’t blame you; I nearly commented on his father’s reproductive preferences!

What is solicitation?

StreetWalkingOne day, I replayed this abuse in my brain (at ultra-slow speed) and discovered the English version: “Insurance is the subject matter of solicitation”. This worried me even more. I thought “solicitation” was a crime under Indian Laws like SITA & PITA (Suppression of Immoral Traffic Act and Prevention of Immoral Traffic Act). Yet, this guy was openly admitting he was soliciting?

Let’s forget the legal side; it doesn’t make business sense. By the last count, India has 2.8 million sex-workers (with or without soliciting agents).   LIC has no sex-workers, but only agents (11,63,604 of them as per their 2014-15 Annual Report) who were presumably soliciting, without any feet-on-the-street (and without other relevant body parts, which shall remain unmentionable) As a pensioner from LIC’s schemes, I was worried –– I mean, are they on a sustainable business model?

The Great Cover-up

I probed the internet for answers. One expert’s explanation was: “solicitation” is the act of the company openly asking for business, whereas in the insurance business it was expected that the customer would make the first overture! This did not look like good marketing strategy at all, either in the world’s oldest profession, or in Insurance (which in all probability, is a close second)! Another guy who claimed to be CFP (Certified Financial Planner) had this to say: Insurance business has many complexities and cannot be sold as an over-the-counter readymade product; so you need an expert’s advice —like a CFP — for customisation. This was unadulterated gobbledygook.  Just look at the Insurance Policies — Jeevan Mitra-3, Jeevan this-and-that, Shanti-this-or-that Vikas-something-or-the-other— how many are customisable? Can you change even a comma in any policy? And this guy was a CFP (Confirmed Foolish Person, perhaps)?

CoverupFinally, I found the answer. Our friend, One-born-of-a-canine-mother, yells on TV because the IRDAI (Regulatory Authority) has mandated it. And the IRDAI has mandated after careful thought. You see, LIC (the prime villain) and so many other Insurance companies obfuscate the nature of their main business: to cover against a risk like death or accident.  They combine standard insurance with Pension Schemes, Investment Products, Tax Breaks and other sweeteners rather than focus on the main purpose (risk cover). The worthies who appear on TV mouthing meaningless slogans add to the cover-up. Actually, customers would be better off taking a pure insurance cover instead of the Masala-Combos on offer! They were being misled, so IRDAI enforced this statutory disclosure. If it is enunciated in the true spirit of IRDAI, it should sound thus: “INSURANCE is THE subject matter of solicitation”. In other words, “Oh customer, please focus on the Pure Insurance part, and ignore the drivel we spew about Investment, Dreams and Placebos!” By garbling the statutory disclosure, they hide the fact that you get better returns on investment products like mutual funds; that they are non-transparent about the real cost of insurance; that they can make profits despite being inefficient. They are definitely not pro-customer, but that is another post for another day.

Truly, “Insurance is a subject matter of obfuscation”!


2 thoughts on “Insurance: Cover Vs. Cover-up

  1. Sir, You have been always telling that Insurance must be taken for the purpose of ‘Risk Cover’ and not as an investment or for other benefits.

    But, ‘Insurance Agents’ are trained so well to seduce some ordinary person and make them accept some policy, which will be of no use.

    My house-maid (servant) had fallen prey to some LIC agent.
    She had paid few thousands as monthly premiums, thinking it as an investment (chit fund).
    After few months, she was unable to pay and discontinued.
    Now she is asking how to get back the money.. She is so ignorant and asking will she get interest on the money she paid… poor lady.

  2. Yes. The LIC is clearly a pioneer in Indian Insurance. But they have also created some bad precedents. This is what happens when the State creates monopolies.

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