If you’re considering launching a Web Insurance Aggregator business in India, it’s time to look for something else to do. The policies from the regulator IRDA are regressive and incomprehensible, and stuck in the pre-liberalization era. This is license raj. One would assume that with time, their policies would get better, but that doesn’t appear to be the case. The IRDA has notified a Web Aggregator license (essentially, websites which aggregate insurance information to provide comparison for consumers) with some odd requirements (download here):
1. The IRDA is defining your business model: Web Aggregators are not being allowed to choose how they monetize.
– CPA Model mandated: The IRDA is allowing them to collect leads, but not to charge insurers on a cost-per-lead basis. Instead, they’re mandating a Cost-per-acquisition (CPA) business model for India, and have instructed insurers that “No charges should be paid for such leads by the Insurer.”
– No Advertising On Website: In addition, they’re not allowing web aggregators to have advertising on their website. One can understand, if one thinks a little conservatively, that they might not allow insurance advertising on an insurance comparison portal, but the IRDA doesn’t want any advertising at all. They’re saying that the web aggregators cannot have any “- Display advertising of any sort, either pertaining to any product or service including insurance product or service, other financial products or service / or any other product or service in the Web Aggregators Website.”
– No upselling other products: Not just upselling. Web aggregators can’t even “Display any information pertaining to products or services of other Financial institutions / FMCG or any product or service on the website”
– No side businesses: Web aggregators cannot operate the websites of other Financial / Commercial / marketing or sales or service entities
– No Social Media: Web aggregators cannot use “Social Media sites etc. for comparison of products etc.”
– This must be the only business they do: but not be a licensed insurance agent, corporate agent, micro-insurance agent, TPA, Surveyor, Loss assessor or any insurance intermediary.
– No referral arrangement with an insurer.
– The Insurer can only pay for conversions. The IRDA has asked them to “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”, “not pay any fee or remuneration, by whatever name called, on any type of renewal premium / policy payable from the second year and the subsequent years, to web aggregators.”
– The insurer is not allowed to pay any advance to a web aggregator
2. IRDA is defining your name: Web aggregators have to have ‘Insurance Web Aggregator’ or ‘Insurance Web Aggregators’ in the name of the Insurance Broking Company to reflect its line of activity and to enable the public to differentiate IRDA licensed insurance Web Aggregator from other non-licensed insurance related entities.” They are “not permitted to use any other name in their correspondence/literature/letter heads without the prior approval of the Authority.” So if your company is called Cartwheeling Insurance Aggregators Pvt Ltd, but your website is called “SuperPolicyIndia.com” (note: no one’s booked this yet!), in all your communications (which should include your website as well, you’ll have to call yourself Cartwheeling Insurance Aggregators Pvt Ltd, and are not allowed to use SuperPolicyIndia.com.
3. IRDA is defining your domain names: Web aggregators are not allowed to operate multiple websites, except if they use the same domain names with suffixes such as .com or .in or .co.in for the primary website of the Web Aggregator. Even then, “The Web Aggregator should inform the Authority in writing about the date of Registration and also date of launching of domain names of such websites or mobile sites in the application for grant of license and thereafter within 15 days from the date of Domain Name Registration and Date of launching respectively in case of any change in the name(s) of the existing websites or new websites.”
4. IRDA is defining how you sell insurance: Is there much scope for innovation in how insurance policies are compared? Well, if there was any, there’s no point. The IRDA is defining how web aggregators go about comparison and discovery: the “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.
The IRDA has also defined a web aggregator must categorize insurance products, and which features can be compared by web aggregators. Web aggregators shall display product information purely on the basis of the information furnished to them by insurers. Web Aggregators can use published data for “Additional Information to Customers” based on IRDA Data.
5. The IRDA Is Limiting Your Ability To Raise Funds: A web aggregator is not an insurance company. It’s a marketing that markets for insurers and generates leads for them to close. But the IRDA is treating them like it would treat insurance companies, and is limiting fund raising. Foreign Direct Investment in web aggregators “should not exceed twenty-six per cent paid-up equity capital of Web Aggregator at any time.”
6. The IRDA Wants You To Apply For A License Every Three Years: It’s licence-raj all right. The Web Aggregator licenses are on a renewable basis, only for three years at a time. Thus, every business runs the risk of getting its license canceled. Why three years? There is no indication in the document about why it isn’t 10 years or 20 years, wherein it makes it viable for a web aggregator to live with the pain of setting up a business under IRDA guidelines. What’s more, the IRDA is also defining the term of agreement between the insurance company and the web aggregator. Again, it’s limited to 3 years.
This is, of course, besides the point that a license shouldn’t be needed: imagine if meta search engines like Ixigo have to get a license to operate from the DGCA.
7. The IRDA Defines How You Deal With Leads:
– Only use a Lead Management Systems, which data should be shared with insurance companies with whom web aggregators have signed agreements. Web Aggregator should provide an option to select up to three insurers by the visitor, to whom the lead can be transmitted simultaneously. If the Prospect evinces interest in buying insurance but does not prefer any Insurer, web aggregator shall not transmit the lead to more than three Insurers in the same class of insurance business.
– Web aggregator shall transmit the data of Prospects to Insurer not later than three days of visit to the web site.
8. The IRDA can cancel your license if it “feels” you’re diverting funds to group companies: “In the circumstances where the Authority feels that the establishment of a Web Aggregator is only to divert funds within a group of companies or their associates, it can after due enquiries made by it cancel the license granted to the Web Aggregator.”
9. You Need Permission From The IRDA To Change Your Shareholding Structure, Take Loans: “The Web Aggregator shall not register any transfer of shares or contribution, as the case may be, without the prior written approval of the Authority where after the transfer the total paid up equity holding or contribution of the transferee is likely to exceed five per cent of their paid up capital or contribution. The Shares of a Web Aggregator held as capital as per provisions of this section cannot be pledged in any form or manner to secure credit or any other facility and at all times should be an unencumbered capital. Similarly, where the nominal of the value of shares intended to be transferred by any individual, firm, group, constituents of a group or a body corporate under the same management jointly or severally exceeds five per cent of the paid-up capital or the contribution, prior written approval of the Authority shall be obtained.”
Then there’s a complete set of guidelines from the IRDA for web aggregators as Telemarketing firms. This is basically a case of the IRDA writing up half the SLA’s between insurance companies and web aggregators, only that it is not giving two businesses the freedom to define the arrangement between them. Protecting consumers is important, but this is a case of throwing out the baby with the bathwater.
Given the history of IRDA’s approach to regulation – the past few guidelines have been regressive as well – it will take a brave person to start a web aggregator business in India, and that too, only with the hope of the policy noose loosening a few years down the line.
Spare a thought for the likes of PolicyBazaar and EasyPolicy, which are heavily invested in this business. We’ll try and get responses from them on what they plan to do from here on. It’s not going to be easy.
– Aug 2013: On The Regressive Web Insurance Aggregator Regulations Proposed By IRDA (Draft guidelines)
– Nov 2011: IRDA Regulates Web Based Insurance Aggregators; Fixes Max Rs 10 Per Lead, 25% Commission (Guidelines)
– Apr 2011: IRDA Draft Guidelines Will Limit Indian Web Insurance Aggregators (Draft guidelines)