The web Insurance aggregation segment in India is headed for another disaster, if the insurance regulator IRDA goes through with a restrictive and regressive set of guidelines it has made public, as draft, for consultation.

These guidelines essentially convert web aggregators into insurance agents and telemarketing firms, ignoring the efficiency that is inherent in an online lead generation and comparison business, and the fact that they are, well, aggregators of insurance products for comparison purposes, and not necessarily sales agents or telemarketing firms. Apart from there, there are limits on Foreign Direct Investment, no money from lead generation, guidelines for employee training, how comparison has to be done, number of websites that can be run, no use of Social Media…it goes on and on. There are even limitations on what insurers can and cannot pay web aggregators for. To say that these guidelines are restrictive is an understatement.

They’re calling them “Web Aggregators”, but it is likely that, if these guidelines are implemented, stand-alone, web-only insurance aggregators will cease to exist. Remember that web aggregators like PolicyBazaar had been forced to enter the call center business after the last set of regressive guidelines from the IRDA, because the last set of guidelines had made their business unviable.

We wonder if the mandate the IRDA has is to discourage competition and innovation in assisting consumers in buying insurance, or is it merely to put web insurance aggregators out of business. There is little in these guidelines that would encourage someone to set up a Web Aggregation business, and those who are already there are perhaps only continuing because of how much they have already invested in it. As of now, India only has 7 licensed “Web Aggregators”, and these guidelines – if enforced – are clearly not going to encourage competition

The 12,000 odd word draft guidelines are available for download here, and the last date for submission of comments is the 8th of August 2013, to suresh@irda.gov.in (and cc’ed to bvsastry@irda.gov.in).

Some provisions:

1. Mandatory licensing of Web Aggregators: A web aggregator is a business which, as per the regulator “maintains /owns a web site and provides information pertaining to insurance products and price / features comparisons of products of different Insurers and offers leads to an Insurer.”

Companies wanting to become web aggregators will have to apply for a license. As we had mentioned the last time the IRDA came up with its guidelines, the institution of licenses for those who are merely providing comparison and lead generation functions for insurance companies is uncalled for. Due to these restrictions, there are only 7 licensed web aggregators in India. The guidelines make it criminal for anyone apart from those licensed to operate a web aggregation business.

2. License period of only 3 years: The license will be valid only for 3 years from the date of its issue.

In our opinion, the validity period of the license is ridiculously low, and inhibits raising investment in the business (foreign or otherwise). Why would an investor put money in a company which runs the risk of its license being canceled or not renewed?

Such pressure creates a situation that can foster corruption, and this and the move to license web aggregators is a regressive approach by the IRDA. And, frankly, it’s not a national resource (like spectrum, or coal) which is being licensed here. This is, of course, besides the point there there isn’t be a license.

3. No money for lead generation: the lead generation model is being killed by the IRDA, which is looking to mandate that no charges will be payable for leads by the Insurer. Instead, web aggregators are being treated as outsourcing companies for insurance companies, and can collect money only for the following:
a. There is a limited remit, in terms of a flat fee of maximum Rs 50,000 per year for each product on the comparison charts of its web site.
b. Web aggregators can be paid for a policy procured through its services up to a maximum limit prescribed under section 40 A of the Insurance Act. In other words, this is a cost per acquisition model, and not a lead generation model.
c. Web Aggregators can provide Outsourcing services for insurance companies, like :Reminders for Premium Payment, Printing and posting of reminders for other services, On line collection of premiums through the Insurers website only.
d. Web Aggregators can provide telemarketing/distance marketing services.

What’s odd is that though these guidelines appear to try to convert web aggregation businesses into insurance agents, the guidelines stipulate that it cannot be an “insurance agent, corporate agent, micro-insurance agent, TPA, surveyor, Loss assessor or an Insurance Broker”, and not have a referral arrangement with an Insurer, or be a related party of an insurer, insurance broker, corporate agent, micro-insurance agent, TPA, Surveyor or a loss assessor.

4. No cross-selling of products: A web aggregator is not being allowed to monetize through the display of information related to products or services of other Financial institutions in the website.
5. No advertsing on their website: No display advertising of any sort is allowed
6. Only one website: A Web aggregator cannot operate multiple websites
7. Insurance only, no use of social media: A web aggregator cannot operate the websites of other Financial / Commercial / marketing or sales or service entities or use other Social Media sites etc. for comparison of products etc.

8. FDI Limits in investment in Web Aggregator same as that for insurance sector: While Web Aggregators are not insurance companies, they are being forced to comply with FDI norms related to insurance.

“No part of the capital of an applicant shall be held by a non-Indian interest beyond the limits in force at any time. For the purposes of this regulation, the calculations of non-Indian interest shall be made in the same manner as specified in Insurance Regulatory And Development Authority (Registration of Indian Insurance Companies) Regulations, 2000 for an insurer.

In our opinion, a web aggregator is merely generating leads for an insurance company, or is offering consumers a platform for comparison. It is not an insurance company by itself. It doesn’t make sense for the regulator to ask an aggregator to comply with norms for an industry it services. This is akin to asking online recharge sites to comply with FDI norms for Telecom or DTH.

We’re not sure of how this will impact PolicyBazaar.com, which has raised money from Intel Capital and Inventus Capital, apart from Info Edge.

9. Employees of the Web Aggregator: should have completed fifty hours of “theoretical and practical training on insurance from an institution recognized by the Authority from time to time and passed an examination, at the end of the period of training mentioned above, conducted by the National Insurance Academy, Pune or any other examining body recognized by the Authority. Telecallers deployed by Web Aggregators to solicit business should be employees on the rolls of the Web aggregator and should have undergone statutory training as prescribed by IRDA.”

Our Take: Why? The whole idea being web aggregation is to provide comparison on a website, and leave it to the consumer to decide. If a web aggregator is not an advisory, why the compulsory training?

10. Limitation of Comparison: The IRDA is prescribing the ways as per which consumers will be allowed to compare policies, as well as disallowing ratings, rankings, endorsements, and top sold. What’s more they are restricting web aggregators from commenting on insurers or their products in editorials, or at any location in their websites. This will inhibit discovery, and impact consumer feedback on insurance products sold. Consumers use the Internet to make better decisions, and limiting the amount of information a provider is allowed to share with them inhibits their ability to make better choices. Comparison is also being limited to the following formats:
– Life: Term Insurance Products, Endowment Products, Health Insurance products, Retirement – Immediate annuities, Retirement – Deferred annuities, Children’s products,
– Non Life: Home Insurance, Motor Insurance, Health Insurance, Travel Insurance, Personal Accident Insurance, Rural Insurance, Corporate and Commercial, Other classes.
– Method of comparison: on the basis of Eligibility criteria; Plan / Policy Term / Premium term / Min and Max SA / Age / Min & Max Maturity etc. have to be compared; Inbuilt Benefits / riders can be compared (Additional Riders to be compared separately); Premiums for different age groups can be compared; Surrender benefits / Loans etc; Benefits such as Survival benefits / Maturity Benefits / Death benefits etc. are to be compared;Returns – 6 % and 10 % s approved by IRDA to be compared
– Web Aggregators can use published data for “Additional Information to Customers” based on IRDA Data.

11. Use Lead Management Systems: Web aggregators are being told to use Lead Management Systems (LMS) for sharing data with Insurance companies, and deploy an IT Firm to audit these LMS systems at least once in 6 months. The Audit Report needs to be submitted to the IRDA and the Insurers.

We don’t see the need for the IRDA to mandate the use of Lead Management Systems. That’s a commercial arrangement between the insurer and the Web Aggregator.

Guidelines for Insurers:

Apart from this, there are specific guidelines for insurers, that limit how they pay Web Aggregators. To us, it appears that insurers had sought other ways of paying Web Aggregators, in order to ensure that they remain in business, because the last set of IRDA regulations had made them unviable. In this set of regulations, there are Obligations of Insurers identified:

– No fee to be paid to a Web Aggregator other than that specified earlier.
– They shall also “refrain from reimbursing expenses incurred by web aggregators towards maintenance of data base, infrastructure, training, entertainment, development, communication, advertisements, sales, promotion and towards any other expense.
– No pay any fee to be paid on any type of renewal premium / policy payable from the second year and the subsequent years, to web aggregators.
– No fee to be paid to any person/entity who owns/maintains a website not approved by the Authority under this regulation that is engaged in web aggregation or product/price comparison.
– No advance to be paid to a web aggregator
– No remuneration after termination of agreement with web aggregator.