Mobile insurance ban: baby thrown out with the bathwater?

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During the COVID-19 pandemic, insurers paid more than Rs. 45 million for hospitalizations and deaths, covering more than 5,000 families, on policies obtained through mobile insurance. In total, 90% of customers who purchased a policy through mobile insurance did so for the first time – Photo by Shehan Gunasekara

Modern technological developments will always give rise to different types of promotional activities, and not all of these activities will fit perfectly into the boxes provided by existing rules and regulations. However, by completely banning such activity, the regulator is only hindering the organic development of what was until now a dynamic and resilient industry. Such measures are regressive, archaic and demonstrate a fundamental lack of imagination and will.

The Sri Lanka Insurance Regulatory Commission (IRCSL) has banned with immediate effect the use by insurers of telecommunication service provider platforms in the promotion and sale of insurance products. The Direction (# 4 of 2021) was released on September 6 and covers platforms such as mobile and fixed lines.

At first glance, management appears to prohibit the use of mobile and fixed lines in the sale of insurance products. Such a ban would absurdly prohibit an insurer from even calling its customers. Yet, upon closer examination, the main objective of the new directive appears to be to ban the process of promotion and sale known as “mobile insurance”.

Mobile insurance is not defined in the Insurance Industry Regulation Act or the said directive. However, in common usage, mobile insurance refers to a method of promoting and selling insurance whereby insurers or insurance intermediaries, in partnership with a mobile service provider, promote products. simplified insurance (with very few terms and conditions) via the mobile service provider’s telecommunications platform. The whole process, including promotion, sale, collection of bonuses and notification of complaints, is handled through a mobile or landline provided by the telecommunications service provider.

Insurance products sold through mobile insurance, according to industry sources, include products that provide income protection during hospitalization, life coverage, individual accident coverage, critical illness coverage and protection. dwelling. Over two million policies have been sold using this method, covering over 1.2 million families. Insurers have paid a total of over Rs. 2 billion in claims. During the COVID-19 pandemic, insurers paid more than Rs. 45 million for hospitalizations and deaths, covering more than 5,000 families, on policies obtained through mobile insurance. In total, 90% of customers who purchased a policy through mobile insurance did so for the first time.

Mobile insurance is, overall, beneficial for the county and the insurance industry as a whole, as it allows customers to access insurance services, which they might not otherwise be able to. Many low- and middle-income families often struggle to access traditional financial products such as insurance, as the costs incurred in reaching these clients often outweigh any financial incentives for service providers. Mobile insurance fills these access gaps by enabling large-scale and cost-effective access to these products.

In the past, IRCSL viewed mobile insurance as a net positive in its ability to increase insurance penetration. However, with caution, he also considered how best to regulate mobile insurance to better protect policyholders. Numerous consultations with industry and mobile service providers have taken place. Parties involved in mobile insurance had a legitimate expectation that the regulator would move towards a regulatory mechanism that would promote the growth of mobile insurance, while providing adequate guarantees to policyholders.

Against this backdrop, an immediate ban on mobile insurance, which took the entire industry by surprise, is a drastic reversal of the regulator’s approach to mobile insurance in the past. In its immediate effect, it appears both arbitrary and counterproductive to the objective of increasing insurance penetration. The ban gives the impression of being an instinctive reaction to some recent media reports which have highlighted a few isolated cases of policyholder dissatisfaction.

The said directive is issued under article 96A of the RII law, which gives the regulator the power to issue any directive in order to protect the interests of policyholders and potential policyholders. As such, IRCSL has an obligation to explain how this sudden ban on mobile insurance will protect the interests of policyholders and potential policyholders.

IRCSL recently solicited public opinion on the use of mobile insurance – its pros and cons. It is possible that the ban is the culmination of any information gleaned from this public opinion. However, IRCSL had not disclosed what the overall consensus for this study was. The insurance industry has also not been informed or consulted on the results of the study or the proposed policy measures being considered by the regulator.

The ban on mobile insurance also raises a legal question, whether the regulator has acted ultra vires in seeking to ban a specific type of promotional activity. Instructions issued under section 96A must be made for the sole purpose of protecting the interests of policyholders. However, in a situation where thousands of customers are using mobile insurance, it is unclear how the regulator came to the conclusion that the total ban on mobile insurance serves to protect their interests. It is also unclear how the regulator assessed whether the negative implications of mobile insurance (of which the public has not been informed to date by the IRCSL) outweigh its positive aspects.

The expression “The interests of policyholders and potential policyholders” is a vague and ill-defined idea. It should not be used as a catch-all for the regulator to issue all kinds of instructions. At a minimum, how these instructions serve to protect the interests of those policyholders and how the regulator came to such a conclusion should be disclosed.

Modern technological developments will always give rise to different types of promotional activities, and not all of these activities will fit perfectly into the boxes provided by existing rules and regulations. However, by completely banning such activity, the regulator is only hindering the organic development of what was until now a dynamic and resilient industry. Such measures are regressive, archaic, and demonstrate a fundamental lack of imagination and will.

It is hoped that with industry consensus, a better and more prudent regulatory mechanism will be put in place that would better regulate, and also encourage, this type of insurance promotion activity.


(The author is a lawyer and founding partner of LexAG. He is also the former General Counsel of the Insurance Regulatory Commission of Sri Lanka.)


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