Trading in life insurance gearing up for next level

An average Indian considers investment in life insurance policy as a safe investment as it not just covers insurer's life but also gives return on investment.

However the Bombay High Court's recent judgement allowing trading in insurance policies, has paved way for legal trading in it and the insurance sector especially the broking firms are of the view that the trading of life insurance polices should be formalised and legalised at the earliest.

Demanding legalisation of trading in life insurance polices, Rahul Aggarwal, chief executive officer, Optima Risk Management Services, said, "IRDA should legalised the trading of the life insurance polices to make the entire system more transparent."

Recently, in a judgment the Bombay High Court clarified the trading in insurance policies is permissible as its working as it paves the way to formalise trading of life insurance policy products.

Presently, the trading of the life insurance policies is undertaken in a unorganised manner with small time broking firms picking up the lapsed life insurance policies. The insurance policy trading in an unorganized market in an unorganized manner is exposed to the threat of frauds may be committed by the agents taking advantage of the situation says industry experts.

The argument made by some quarters that making insurance policies tradeable will encourage unhealthy practices which in turn might harm public interest.

According to Aggrawal, this is a rare possibility as unorganised trading is more harmful to the public rather than a transparent and legalised trading in life insurance policies.

Experts are of the view that opening up life insurance product for trade, the customer will get optimum value for their policies.

"Most lapse policies are of no use to the policyholder and there where the people can make good out of nothing", argues Vinay Taluja, senior vice president, Life Insurance, Bajaj Capital Insurance Broking Ltd.

According to Taluja, if the market is formalized the insured person can get better value of its policies thereby there is need of the hour that the trading of life insurance polices should be legalised and formalised.

Taluja is of the view that making the life insurance policies tradable will allow the customer to switch-over from one policy to another without worrying about old policies which has lost its purpose.

"Most of the policy holders normally follows the advise of the insurance agents which sometime does not even serves the purpose for the policy holders", adds Taluja.

An alternative route given to the customer to dispose off their old and outdated life insurance policies will have a positive affect as it would help selling more number of new policies.

Few other broking firms also share the a similar view. According to a broker with a leading broking firm legalising and formalizing the trade in life insurance products will be a win win situation for both the customers (policy holders) as well as for the broking firms.

Recently, in a petition filed by an investor it was contended that Life Insurance Corporation of India refuses to honour policies in transaction in case of a particular company. LIC reportedly had contended that the company had no insurance business interests and the policies were purchased merely to re-sell them onward.

However, the Bombay high court rejected the contention of LIC and stated that the contractual terms of the policy did not prohibit LIC from honouring the policy.

The court further said that as long as the due process are followed and the parties involved are willingly participating in the transactions, then LIC's role is just reduced as a registering authority.