The Spitzer Effect

After cleaning up the mess in the mutual funds, New York Attorney General Eliot Spitzer is vacuum cleaning the insurance industry in the US....

After cleaning up the mess in the mutual funds, New York Attorney General Eliot Spitzer is vacuum cleaning the insurance industry in the US. What Spitzer is doing to the office of the NY Attorney General is much like what T N Seshan did to the election commission and N Vittal to the office of the CVC in India 8211; they all took a moribund government post and used it as a lethal weapon to clean up political, bureaucratic and corporate mess.

The insurance industry in India has a legacy of non-transparent dealings ever tried to get a cost structure from the LIC agent? and non-disclosure. While things are changing slowly due to privatisation and a regulator, much needs to be done to help the customer decode insurance products. The insurance industry needs to do what the TRAI is proposing to do with the telephone packages 8211; provide a comparison that can be understood by the user without needing experts to decode small print, hidden costs and costs that vary across companies. SEBI8217;s mutual fund guidelines can be used to see how costs can be standardised across an industry.

We spoke to Deena Katz, one of the top financial planners in the US, about what the US insurance clean up means to the US and to us here in India:

What is happening to the insurance industry in the US?
It looks as though we are in for a much bigger insurance shake-up here. The insurance industry has a huge lobby and so far has been able to pass major tax provisions that have been very favourable for the insurance industry. They have also been able to escape a crackdown on questionable sales techniques and practices. Eliot Spitzer is determined though, and enough of the public has been affected by these practices, so that we are all for taking them to task in a big way.

Will any of this action make a difference to the Indian insurance customer?
I am certain, since many of these insurance companies have global presence, that India will, at some point, be affected by the forthcoming regulations and registration that we will face here. So far, transparency and disclosure will be the biggest changes. In my practice, we are required to disclose everything, but the insurance agents do not. We are hoping that there will be a requirement for all fees and commissions to be reported to the client, and that there will be greater transparency in the imbedded fees and charges.