Policyholders at risk with agents not covered under indemnity policy

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Insurance intermediaries such as brokers, corporate agents, web aggregators, and marketing firms are now required to take standard professional indemnity policy as directed by The Insurance Regulatory and Development Authority of India (IRDAI). Such insurance policies cover errors and omissions on the part of the intermediaries and their employees while rendering their service. While earlier many intermediaries were buying these policies, it is not easy to get them in the absence of any standard guidelines. With standard guidelines now in place, it would be much easier for intermediaries to get a policy post this announcement.

It is a welcome move as it will ultimately protect the interest of policyholders in case of any mis-selling done by intermediaries. The consumers will be assured that in case there is any negligence or error on the part of the intermediary then they will be liable to get their money back. Moreover, intermediaries will be able to successfully handle such complaints in case of any financial loss due to a breach of professional duty.

In the past, we have seen professionals getting sued by their clients for negligence during the course of their professional duties. A professional indemnity policy in such instances protects intermediaries against negligence claims by their clients. The guidelines issued by the regulator will come into effect from July 1.

Surprisingly, the circular does not cover individual agents who constitute one of the principal channels of distribution. Without a professional indemnity policy for individuals, a large section of intermediaries remains uncovered, which is not good for policyholders. The regulator should draw a framework for individual agents as well, who serve as a backbone of the insurance industry.