Ensuring Transparency in Digital Insurance Transactions
Insurance is an offer and acceptance contract which works on the principle of business solicitation through an intermediary as per process below:
- Agent / broker / POS approach a prospect, tell benefits of insurance and solicit business after understanding the need of the prospect and then help to select the right solution.
- Prospect needs to fill a proposal form under the guidance of an intermediary and this form is sent to underwriters of the Insurance Company. Earlier this form was filled by hand along with signatures of the prospect which confirms that prospect has understood and given all details with honesty. Insurance is a contract of utmost good faith where underwriters would take a decision on the basis of declarations made by prospect. Today 99% of forms are filled digitally and OTP has replaced signatures. Digitally form is filled by an intermediary on his Tablet or system. If a prospect is not comfortable in detailing and English then they will not be able to check the content.
- Underwriters assess the risk on the basis of information given in the form and take their decision. Insurance Companies send this filled digital form and demand verification through OTP. OTP is a confirmation that the content of the form is correct. How many customers really go through with a filled form before sharing OTP.
- Insurers also use technology to verify all facts through tele calling the customer and ensuring that the sales process was right and no unethical allurement was given . But these verification calls ask basic details and customers to not take it seriously because they are not educated about it.
- Insurer sends the Policy document and offers a 15 days free look period to terminate the contract with full refund.
But these steps have not been able to curb malpractices and Industry is suffering with 36th month persistence of around 40% which means 60% of policy holders feel cheated and terminate the contract after having losses of premium. With technology advancement and use of artificial intelligence , it was projected that probability of miss selling would reduce.
This had happened during days when form was filled by hand. Today, form is filled digitally and throw more challenges as given below:
- There is no signature and form is accepted through OTP . OTP is an acceptance that a prospect has checked the form and verified it. So it is advisable to all that they should not share OTP unless they have checked all details of the form. Mostly, prospects presume that OTP is their agreement to buy and not agreement with contents of the form. It is the duty of the agent to persuade people to check the form but intermediaries with the wrong motive would avoid sharing this important information.
- Moreover, signature was important for any service request but OTP creates a problem because all service requests have to be done online. Many old people are not comfortable and change their email frequently. This can also cause many other problems where nominees can be changed without signature and without consent. Hence, it is advisable that email id and password is not shared to avoid any unintended service request. One should also visit the insurer’s website to verify all facts given in the policy.
- Digital form filling is a problem with prospects who are illiterate and do not understand English. Earlier, there was a vernacular declaration which certified that all product features had been explained in language of prospect. This vernacular declaration was done by someone not related to intermediary. Declarer would also certify and sign to confirm that all features were explained. Today, there is only a certification through the same OTP where the product was explained. It does not identify who explained the product. In India, how many people really understand English? This throws many challenges to customers when the insured says that product details were not explained. Hence, it is advised to intermediary as well as prospect that they should take a certificate that product features were explained and the declarer should give their name , address and mobile number.
- Digital form filling and payment systems also give scope of third party payment. Earlier payment was made by cheque of proposer having name and signature which used to alarm insurer curbing the chance of third party payment. This opens fear of moral and economic hazard. It is advised to all intermediaries and prospects that a contract can be called invalid in case of third party payment thus defeating the purpose of insurance.
- In case of Form 2 , where proposer and insured are different, chances of mis- selling is increased because intermediaries can do insurance without seeing life to be insured. Earlier, forms need signature of proposer and insured, if over age 18. Today, one can trap an old person with false promises by making children’s life to be insured. In such cases, children are not aware about insurance and show their dissatisfaction. It is advised to all prospects that they should take consent of life insured and take a letter that they would continue with insurance in case of death of the proposer.
Intermediary was considered as field underwriter and used to sign that they know the prospect and certify about their health. This was evidence which used to help in case of early death . But under digital form, the role of intermediary is limited thus opening gates of miss selling through distributors with ill motive.
Though digitization is necessary for the simplicity and expansion of insurance, Insurance companies need to take steps to protect the interest of Policy holders.
Public also must be more vigilant and follow the guidelines for their own protection
By- Shailesh Kumar
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