New Delhi: The system of bidding to provide insurance without appraising the risk, which was barred by the regulator in non-life industry, is equally, if not more, rampant in the life industry reports Economic Times.
Buyers of group insurance are asking life companies to quote their best rate without providing them the basic information in respect of life expectancy or past claims experience.
Insurance companies are willing to bid because a group accounts helps to bloat their top line by increasing the number of individuals covered. Insurers also hope to use the group life business as a lever to acquire the more profitable business of managing the corporation’s gratuity and superannuation funds.
Interestingly, it is public sector companies that rely most on tenders. Accustomed to the ‘L1’ process of awarding contracts to the lowest bidder, PSUs are happy with this system, which limits the subjectivity of the decision.
The latest government company to take this route is Airports Authority of India and Gujarat State Road Transport Corporation, which have over one-lakh employees. Earlier, a large number of the central government companies such as NHPC, NTPC, Gail, BHEL, PFC and Rites have chosen to buy insurance through this route. Companies usually seek bids for the mandatory group saving linked insurance plan and for group term policies.
Inevitably quotes higher next year after a poor claims experience. The cover is then passed on to another private insurer, which is keen to increase marketshare. With topline focused private life companies numbering over a dozen and growing, insurers expect this game to continue unless the regulator intervenes.
"Bidding leads to bleeding for insurance companies. IRDA has correctly intervened in the case of non-life companies and should do the same for life companies," said an insurance official. Through group term policies companies manage to get life cover for a fraction of what it would have cost them as individual. However, these are annual contracts and there is no long-term guarantee.
Earlier this month, IRDA had objected to buyers using the tender process to get the best insurance quote on the grounds that insurance cannot be traded as a commodity. "Proper underwriting requires that the insurer fully understands the requirements of the client and is able to ask for and receive all the information required to support a technically sound rating of the covers required" the IRDA said.
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