India’s insurance regulator IRDA is now looking to regulate online insurance aggregators, and, through the insurance companies it regulates, define the terms under which web based insurance aggregators operate, including the business model and renumeration, and will force the industry to switch from a cost-per-lead model to a cost-per-sale model. Some provisions we culled out from the draft guidelines for web based insurance aggregators and insurance companies in India, followed by our comments:

1. Only Approved Web Aggregators: Only IRDA approved web aggregators can generate insurance related leads for insurance companies. The IRDA shall grant approval for a period of three years to the web aggregator. The Authority may appoint one or more of its officers as an inspecting authority to undertake inspection of the premises of the web aggregator to ascertain and see how activities are carried on, and also to inspect the books of account, records

2. Minimum Net Worth: The web aggregator shall have a minimum net worth of not less than rupees fifty lakhs at any time during the previous three consecutive years. 3. At no point of time of its functioning, a web aggregator shall have net worth below rupees fifty lakhs.

3. Deal terms: Insurer/Broker shall enter into an “agreement” with the web aggregator approved by the authority which shall necessarily include details relating to, among other things, the Fee/Remuneration for the leads to be shared. The agreement shall be valid for a period of three years from the date of grant of approval by the Authority.

4. Lead Limits: If the client evinces interest in buying insurance but does select an Insurer, then the lead may be transmitted to no more than five Insurers in the same class of insurance business, or to more than one Broker. The same lead cannot be shared with both. Web aggregator shall transmit the data of clients to Insurer/Broker within five days of the client’s visit to the web site.

5. Payment terms: No advance payments. Payments shall be made to web aggregators only towards such leads that result in the sale of a policy. The fee for the lead shall not exceed twenty five percent of the commission payable on the first year premium sold on the basis of the lead obtained from the web aggregator. The Broker shall pay a fee not more than twenty five percent of the Brokerage receivable on the first year premium sold on the basis of the lead obtained from the web aggregator. The insurer/broker shall not pay any fees for renewal, or towards incidental web aggregator costs such as maintenance of the data base, infrastructure, training, entertainment, development, communication, advertisements, sales promotion etc.

There are other provisions. Download the guidelines here.

Our take

– Increasing Red Tape: by allowing only approved web aggregators to generate insurance related leads, the IRDA essentially increasing the red tape. Remember that these are merely lead generation businesses, and not insurance companies. Additional power to ‘inspect operations’ would create an environment that encourages graft. We don’t believe that the IRDA should decide who gets into the lead generation business, and who shouldn’t.

– The minimum requirements will kill competition: This is short sighted, and effectively ensures that no startups around insurance lead generation can be set up, since it will have to have been in business for at least three years, and have a minimum net worth of Rs. 50 lakh. This will limit the playing field to existing companies, which is anti-competitive. We think this provision should go.

– IRDA should not define the business terms: Point 5 above is just bizarre – the IRDA guidelines, if finalized in this form, will restrict web aggregators to a single agreement format for a period of three years, including defining the fee for leads. In the Internet space, business models and market realities change year on year (often quicker), and web aggregators and insurance companies should have the freedom to rework their arrangements from time to time, and not be limited to a single agreement over three years.

– The IRDA should not control the payment terms – market forces should be allowed to determine the terms of the deal, not the premium. The IRDA is forcing the industry to shift from a cost-per-lead model to a cost-per-sale model, and also defining the upper limit of the payment made. This level of control over web aggregation is unexpected, and frankly, unwarranted. How will a web aggregator know which leads have been converted, once he passes on that information to an insurer or broker? This is sounding the mobile content business, where there are disagreements between content owners and telecom operators on the total sales of content. Also, the web aggregator is only in control of the lead generated – other factors determine the closure of the insurance sale, so why should the aggregator be held responsible for an insurer or broker?

These are our views on the draft guidelines, and we have limited understanding of how the web insurance aggregator industry operates. In case you’re a web aggregator, and would like to share detailed comments with us, do contact nikhil@medianama.com

Note that these are draft guidelines, so do send in your comments to the IRDA

Download the guidelines here.