Last week, the Financial Express dated December 5, 2018, reported that the Insurance Regulatory and Development Authority of India (IRDA) is considering on expanding the scope of Insurance Marketing Firms (IMFs).
The IRDA appointed panel recommended that IMFs be allowed to sell group insurance policies to Micro, Small, and Medium Enterprises (MSME). They should also be permitted to sell crop insurance to debt-free farmers.
The panel also proposed that individual insurance agents shall be allowed to become Insurance Service Providers, and that their ambit of product offerings be extended to non-insurance products, such as Mutual Funds and Fixed Deposits (FDs) among others, subject to the submission of licenses and authorisation from respective authorities such as Capital Market Regulator and RBI.
If IRDA accepts these recommendations, insurance agents will be able to offer a plethora of financial products.
Given the track record of insurance agents, it will be a worrying factor for investors, especially novice investors.
At a time when Capital Market Regulator is tightening the screws on mutual fund distributors, IRDA is thinking about relaxing regulations. This could give ISPs and IMFs an edge over mutual fund distributors.
After Capital Market Regulator banned upfront commissions, mutual fund houses did pay distributors for distributing their products. But a number of mutual fund distributors also changed their business model, and some are exiting business.
Will exiting mutual fund distributors become ISPs?
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IRDA is thinking about demanding an undertaking stating that IMFs won't use the telemarketing channel to generate leads for their insurance business. As a result, they will have to tap potential customers with mutual fund products.
Convincing new investors to invest in mutual funds isn't a tough job because awareness about mutual fund investing is already on the rise. Campaigns such as 'Mutual Fund Sahi Hai' and other investor education drives undertaken at various platforms will continue to attract more people towards mutual fund investing.
Once insurance agents/marketers build a relationship with a customer, they might start showing their true colours and try to upsell Unit Linked Insurance Plans (ULIPs) and traditional insurance plans to newly acquired customers.
[Read: Why Endowment Plans are Useless: A Case Study]
Disparity in the commission structure on mutual fund products and the insurance products will always deter insurance agents, by whatever name called, to distribute mutual fund products.
Naturally, if the focus isn't on mutual funds, the quality of their recommendations would be substandard.
Do you know why penetration of insurance products continues to remain low in India?
The primary reason is insurance agents, as well as insurance companies, were never serious about promoting term plans until recently. Traditional investment-cum-insurance policies were their favourite products. It's only recently, after online insurance policies proliferated, that mutual fund agents have started talking about pure term plans.
An industry with such a history won't change its heart overnight after being allowed to sell other financial products. Neither will their business models change.
Will IRDA become as strict with insurance agents as Capital Market Regulator is with mutual fund distributors? Looks unlikely since state-run insurance companies still hold the highest market share of India's present insurance market.
Until this happens, insurance will remain a mis-seller's haven.
Changing names and expanding product offerings won't change the character and the history of a person offering them. Insurance agents will always be insurance agents.
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Author: PersonalFN Content & Research Team
This article first appeared on PersonalFN here.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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2 Responses to "Should Insurance Agents Be Allowed To Sell Mutual Funds?"
K s nagaraja
Dec 14, 2018No they should be allowed after training. The present agents even don't know insurance products properly how the can sell MF products which is complex and risky. It is very strange why IRDA is coming to picture of financial products as in our country insurance is taken only for tax benefit even present generation is not thing I k at least as a social responsibility or security
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M S S BALAJI
Dec 15, 2018Suppose a 1 lakh is invested in a equity oriented MF, every year, for 20 years. Similarly a 1 lakh is invested in ULIP, equity oriented, every year, for 20 years. Assume that they grows @ 12%. Which agent will get how much commission?