Insurance purchase is an important decision and requires one to clearly understand the policy
details in order to choose the best suitable product. Life insurance products include term plans, endowment plans, money-back plans, Ulips, pension plans, child plans, whole life plans etc and there are 23 life insurance companies including LIC marketing different variations of these plans. Similarly, there are general insurance companies with non-life insurance products like health insurance, motor insurance, travel insurance and the list goes on.
Most customers do not have complete knowledge about the various plans available in the market and since choosing the right policy requires proper research, they turn to an insurance agent for help. Moreover, seeking quick advice from an agent seems to be the best possible solution for time-pressed customers today.
However, there should be a clear differentiation between an insurance agent and a financial advisor. This is what the Securities and Exchange Board of India (SEBI) has set out to do. As per the Sebi proposal, the role of an agent and an advisor should be segregated.
It is absolutely necessary as the distribution of financial products should be free of any conflict of interest. This conflict arises because of the dual role played by distributors as an agent of the manufacturer i.e insurance companies, banks, etc as well as an agent of the investor (customer). Distributors or agents are likely to be partial to and inclined to sell products of the manufacturer who is the best paymaster. As these agents work on commissions, they may get biased in pushing a product of a particular manufacturer over the other. Thus there is an innate conflict in the activities of an agent or distributor selling similar products from various manufacturers. This gives rise to mis-spelling and customer dissatisfaction.
According to the SEBI paper and a possible model for tackling these issues:
. The person who interacts with the customer must clearly declare upfront whether he is an agent or a financial advisor.
. If he is an advisor then he would be subject to Investment Advisors Regulations and would require a higher level of qualification.
. On the other hand, an agent will be associated with the manufacturer and would receive remuneration from them. These agents will not be allowed to call themselves a financial advisor.
