The Insurance Regulatory and Development Authority (Irda) has released an alarmingly stringent set of regulations that could, bluntly, force Web insurance aggregators out of business, when they come into force in February 2012. At the very least, these guidelines will mute Web-based dissemination of information about insurance schemes and, probably, vitiate the Internet’s effectiveness as a cost-effective channel for insurance products. Web aggregators are independent entities that carry details of various schemes from multiple insurers on their websites. They offer tools and calculators that allow surfers to compare schemes, and often carry opinionated analyses as well. There are several revenue streams. One is the click-through advertisement model, which translates into around Rs 10/click. A second stream is lead generation. The aggregators collect databases of contact information and share this with insurers. Fees can range between Rs 50-100 per lead (the same lead may be shared with several insurers). A third is commissions paid when a lead fructifies into a policy sale. Irda has caps on commissions, varying according to the structure, tenure, etc, of the scheme. According to industry watchers, aggregator commissions average out at Rs 200-250/policy sale.
The new guidelines ban advertising and sponsored content on aggregators’ sites. They also ban opinion pieces. They even place an upper limit of Rs 10/lead on lead-generation fees. In addition, remuneration on policy sales is capped at 25 per cent of the maximum commission payable on the first year’s premium. What is more, insurers and aggregators must have standing three-year agreements on rates and fees, which they will share with Irda. Any entity that wishes to enter insurance aggregation must show a net worth of Rs 10,00,000, and apply to Irda for registration, paying a fee of Rs 10,000. Irda will inspect the applicant’s books and may refuse registration at its discretion. This constructs a huge regulatory moat, around a business which used to have zero-entry barriers. It also harks back disturbingly in mindset to the licence raj. The restrictions on opinion and advertising may border on the regulation of media, which is outside Irda’s brief. If the guidelines are good in law, any media entity with an ad-revenue model, which carries opinion pieces on insurance, must steer clear of lead generation. Specialised insurance aggregators that want a share of the lead-generation pie must not express any opinion at all on the products they display, and they must forego all click-through and other ad revenues.
The guidelines may perhaps have been drafted with good intentions to prevent mis-selling and ensure that Web lead-generation fees don’t violate the commission structure. But they appear to have been formulated on a knee-jerk basis without due thought as to the actual outcomes. One effect will clearly be to reduce the efficiency of information dissemination. Another will be to drive most specialised Web aggregators out of business by the combination of net-worth criteria and registration. The impact on the industry can scarcely be beneficial.
