Regulation is license raj with another name, it appears. India’s insurance regulator has issues some rather stringent – and in our opinion, disastrous-for-the-industry – guidelines, applicable by February 2012, which significantly restrict the activities of online insurance aggregators – companies like Intel Capital and Info Edge backed PolicyBazaar, EasyPolicy.com, EasyInsurance, ApnaPaisa.com, among others. In a nutshell, here’s what the guidelines force insurance aggregators to do:

1. Brings web aggregators under registration & Inspector Raj: Web aggregators will have to apply to receive an approval from the IRDA, in order to be allowed to offer web aggregation of insurance. There’s an application fee of Rs 10,000, and a web aggregator needs to have a net worth of Rs 10 lakhs. The authority will approve the web aggregator for a period of three years, after which there will be a renewal. Note that the minimum-net-worth has been brought down from Rs 50 lakh in the draft guidelines.

The authority is going appoint “one or more of its officers or a qualified chartered accountant 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, and documents of the web aggregator”.

Our Take: well, not exactly licensing, but registration, but there’s hardly a difference.  Why create this layer of approvals for just aggregators? This is a regressive, bureaucratic move, and ensures that startup web aggregators need to get an approval from the IRDA to be allowed to operate, when they are only generating insurance leads, not selling insurance directly to customers. And then there is the public interest bit here: “The Authority may reject the application made by the applicant to the Authority seeking grant of approval / renewal, if it does not satisfy the eligibility criteria laid down under these guidelines or if the grant of such approval is not found to be in public interest.”

That said, the authority will communicate in writing, its rejection to the aggregator, and its decision can be appealed against with the Chairman of the Authority within thirty days from the date of the Authority’s letter communicating such rejection. Appointment of inspectors is just sowing the seeds for corruption. Looks like we’re going back to the pre-liberalization era.

2. Fixes Commercial Terms:

- A flat fee not exceeding rupees one lakh per year towards each product displayed by the web aggregator in the comparison charts of its web site.
- Maximum rupees 10 per lead transmitted by the web aggregator. We had reported last month that leads range from Rs 80-150, so this is a major setback.

- Not more than 25% of the commission payable or actually paid, whichever is lower, on the first year premium of the first policy sold on the basis of the lead obtained from the Web aggregator. In case of life insurance policies procured, where the premium is payable in other-than-yearly mode, the fee or remuneration shall be paid only to the extent of the first year premium installment/s and that have been received by the insurer. In case of long-term policies under general insurance, the fee or remuneration shall be paid only to the extent of the premium installment/s in the first year of the policy and that have been received by the insurer.

- No Advance Payments: “An Insurer / Broker shall not make any payment, by whatever name called, in the form of advance to a web aggregator.”

Our take: This again inhibits price competition in the market, and to quite an extent, reduces the incentive for more businesses to compete for insurance leads by defining and fixing limits on competition. The insurance companies benefit, and the web aggregators lose out.

2. Fixes Agreement Terms: The authority had said that an agreement between the web aggregator and the authority shall necessarily include remuneration for the leads to be shared, time-frame and mode of transmission of leads to be shared, onus of complying with regulatory and other legal requirements on both the parties to the agreement and Identifying the different data elements to be shared (name of prospect / client (visitor of the web site), contact details etc).

3. Disallows comparison of insurance products: The guidelines state that “No person shall offer comparative information on insurance products on the websites owned, maintained, serviced or being utilised in any other manner by him for the purpose of transmitting leads to any entity engaged in insurance business except as provided under these guidelines.”

Our Take: The whole point of insurance comparison online is to provide sufficient information and tools to allow users to make better decisions, and take decisions on the basis of information available to them. This prevents comparative analysis. Online insurance aggregators have the tools to do this. What is not clear here is whether they can still operate tools to provide insurance recommendations on the basis of a users specific needs.

4. Disallows ratings, advertisements: ”Web aggregators shall not display ratings, rankings, endorsements or bestsellers of insurance products on their website. The content of the websites of the web aggregators shall be unbiased and factual in nature; they shall desist from commenting on insurers or their products in their editorials or at any other location in their websites.” In addition, “Web aggregators shall not carry any advertisements or sponsored content on their websites.”

Our Take: This is a negative move – there is no reason why web aggregators cannot be allowed to carry advertisements on their websites. For startups, advertisements on site can help marginally offset costs. The move to disallow ratings, rankings and endorsements is also difficult to understand – why doesn’t the IRDA also disallow advertising of insurance products on TV?

5. Defines Lead Generation Time Limit, Sharing Terms: ”Web aggregator shall not transmit the data of a client to Insurer(s) other than the one(s) preferred by the client”, and shall at maximum, share a lead with three insurers, or one insurance broker, in case the client doesn’t specify a particular insurance agent. There is another clause that suggests that a lead can only be shared no more than 5 days of “the visit to the web site”.

Our Take:

6. Defines Comparison Terms: ”The default/home page of the websites of the web aggregators shall clearly and prominently provide links to the product comparison charts and tables for each category of products covered by them. The visitor to the website should be given clear product options to choose from and once a particular option is chosen, a product comparison chart relevant to his choice shall be displayed. The product comparison chart shall have, interalia, columns to display a) the premium quoted by each insurer relevant to the age, health and other personal details of the client for the product category, policy/premium term, quantum of cover etc chosen b) the default underwriting requirements such as medical examination, diagnostics or other documents c) exclusions, limits or other conditions, if any c) key features of the product chosen.”

Our take: this appears to be in consumer interest, to ensure that a true picture is being provided to the consumer, and it is not biased in any way by any deal that may be more beneficial to the web aggregator.

View the policy here.

Also see: our take on the draft guidelines.

Note: We had requested the IRDA, using the Right To Information Act, for copies of comments submitted to it by industry stakeholders. This information should be public, but we received a non-sequitur response from them. We have filed an appeal against the response, once again requesting information, but we haven’t heard from the Appelate Authority yet.

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