The Hindu : Rebating, replacement should go

Online edition of India's National Newspaper
Thursday, Jun 26, 2003

Business

Business

Rebating, replacement should go — MDRT chief

By K. T. Jagannathan

LAS VEGAS JUNE 25 . The insurance regulator in India must quickly step in to address the twin problem of rebating and replacement that is blocking the entry of professionals into the insurance agency business.

In an interview to The Hindu here, the President of the Million Dollar Round Table (MDRT), the global association for financial services professionals, Richard H. Sullenger, said though India "is a growing market,'' not many agents had qualified to attend the annual convention of MDRT. This was primarily because of the ethical issues related to the widespread practice of replacement of policies and rebating.

Usually, an agent who has achieved a prescribed financial target in terms of commission earned is eligible for attending the annual MDRT convention. But that itself will not suffice. MDRT lays much store by practices and values. The extensive practice of rebating and policy replacement has seen only a smaller Indian participation at the MDRT conventions. One form of rebating is where an agent pays the first year premium on behalf of their client. Replacement is where an agent sells a policy to a client and returns to sell yet another to the same client, replacing the old one.

Mr. Sullenger felt that insurance companies "must begin to see that replacement is not profitable — not only for them but to clients as well.'' The President said though lot of agents in India were reaching to MDRT levels, they did not join MDRD. This was mainly because of rebating and replacement. India, nevertheless, he said had the potential to have largest membership outside the U.S. in MDRT.

Mr. Sullenger said replacement and rebating issues must be fixed if one were to see more Indian participation at MDRT. In his reckoning, it would take a while for these issues to be fixed. Nonetheless, he asserted that the onus was on the life insurance companies to quell the menace of `replacement and rebating.'

The MDRT President said the regulator — the Insurance Regulatory and Development Authority (IRDA) — must immediately step in to ban replacement and rebating. According to Marvin H. Feldman, the immediate past President of MDRT, some states in the U.S. have made rebating and replacement illegal. Any agent who wished to replace an existing policy had to make a whole series of disclosures and fill up a host of forms, he said. In such an instance, it was made mandatory on the part of an agent to ensure that the client was aware of the benefits and disadvantage of policy replacement.

Mr. Sullenger expressed the optimism that the issue of rebating and replacement would be cleaned up and cleared up in India sooner than later. Once that happened, he was hopeful that a whole crop of professional full-time life insurance agents would emerge on the scene, triggering stepped-up Indian participation at MDRT annual gatherings.

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