Looking Ahead: The Future Of Insurance Advertising Norms In India

Introduction

As part of its ongoing regulatory reforms, the Insurance Regulatory and Development Authority of India ("IRDAI") has recently introduced a new principle-based framework governing advertisements issued by Insurance Companies and their distribution channels (agents and intermediaries). This framework replaces the IRDAI (Insurance Advertisements and Disclosure) Regulations 2021 ("Erstwhile Ad Regulations") and the IRDAI's "Master Circular on Insurance Advertisements" of 18 October 2019 ("Master Circular").

The norms on advertisements are now spread across the IRDAI (Protection of Policyholders' Interests, Operations and Allied Matters of Insurers) Regulations 2024 ("PPHI Regulations"), the IRDAI's "Master Circular on Operations and Allied Matters of Insurers" of 19 June 2024 ("OperationsMaster Circular") and the IRDAI's "Master Circular on Protection of Interest of Policyholders" of 5 September 2024 ("PPHI Master Circular"). In addition, specific norms pertaining to advertisements are also prescribed under the master circulars governing each line of business under the IRDAI (Insurance Products) Regulations 2024 ("Product Regulations").

Key Changes:

1. Board Policy: The Products Regulations and accompanying master circulars now require every Insurance Company to have a Board approved policy on advertisements ("BAAP").
2. Advertisement Committee replaces the Compliance Officer: The Operations Master Circular now requires Insurance companies to set up an Advertisement Committee, replacing the previous role that the "compliance officer" played for advertisements. The compliance officer's role however expressly continues for distribution channels.
3. New Requirements for Advertisement Committee: The 2024 norms set out a more integrated approach between advertising and product management, and advertising appears to have been made a part of a broader product strategy:
   1. Any creatives approved by the Advertisement Committee must also align with "the specified framework and the approvals given by the PMC on such products".
   2. There is a mandatory inclusion of a "permanent invitee" from the Product Management Committee ("PMC") in the Advertisement Committee, further reinforcing the linkage.
   3. The Advertisement Committee is required to establish and maintain a system of control over the content, form and method of dissemination of advertisements. It is also tasked with maintaining advertisement records (similar to the erstwhile "advertisement register" requirement), in accordance with the BAAP.
   4. The composition of the new Advertisement Committee shall be as follows:
      1. A minimum of 2 Key Management Persons ("KMP");
      2. 3 senior management officials (one level below the KMPs), and;
      3. A permanent invitee from its PMC, as noted above.
   5. The quorum of the Advertisement Committee shall be 3 members, which need to include 1 KMP and the permanent PMC invitee.
4. Approval/Filing Requirements: The Erstwhile Ad Regulations required every Insurance Company and insurance intermediary to file a copy of each advertisement with the IRDAI within 7 days of release, and a certificate of compliance within 30 days of closing the financial year. Last year, the IRDAI had proposed doing away with the filing requirement in its exposure draft on the "IRDAI (Insurance Advertisements and Disclosure) (First Amendment) Regulations 2023" of 4 May 2023 (Exposure Draft). The new framework incorporates this suggested change and now, all advertisements issued by Insurance Companies and the distribution channels be internally approved.
5. Maintenance of Records: The Erstwhile Ad Regulations specified various requirement in relation to maintenance of records (ie, maintaining an advertising register at its corporate office¹ and maintaining specimen of all advertisements for at least 3 years²). However, records now fall within the purview of the BAAP, under the responsibility of the Advertisement Committee or compliance officer, as applicable.
6. Advertisement by Third Party: Regulation 10 of the Erstwhile Ad Regulations expressly prohibited Insurance Companies and distribution channels from engaging third parties to distribute advertisements about insurance policy (unless they were solely providing a distribution service and the insurance content is clearly separate from their other materials). There were also prohibitions on third parties pressuring their members into purchasing a product due to their affiliations or falsely promise exclusive benefits or advantages³. However, while the new framework no longer retains these stipulations, third party involvement remains expressly restricted to "institutional advertisements" that focus solely on promoting an Insurance Company or insurance intermediary's brand image. Third parties cannot be displaying advertisements designed to directly encourage consumers to purchase insurance.
7. The PPHI Regulations no longer retain the terms or the definitions of "Invitation to inquire advertisement", "Invitation to contract advertisement", and "Joint Sale Advertisement". While the specific terms are no longer used, the underlying principles are likely to continue to apply.
8. Unfair/Misleading Advertisement: The Erstwhile Ad Regulations specified various practices which would deem an advertisement to be viewed as unfair or misleading⁴, and the PPHI Regulations adapts this list and outlines various problematic practices which could mislead consumers like disguising policy terms and conditions, making unrealistic claims, or using illegible text⁵. Further, blanket stipulations have been introduced on Insurance Companies and insurance intermediaries publishing any "Misleading Advertisement"⁶ or engaging in any "Unfair Trade Practices"⁷, as defined under the Consumer Protection Act 2019. These various restrictions apply across all communication channels, including social media.
9. Ratings, Rankings & Award: The new framework continues to specify norms on advertisements containing ratings, rankings or awards. Insurers cannot claim market rankings, and the source of any rating or award must be disclosed and must originate from independent entities not related to the Insurance Company. While the Operations Master Circular no longer sets out the details restrictions on paying/procuring services to get a rating or award from agencies as well as the period for which any awards are considered valid, the overall requirement for such ratings or awards to be independent of the Insurance Company and its affiliates remains, thus effectively maintaining the prohibition. Additionally, when publishing claims paid ratios, the calculation should be based on the number of policies and use only figures which are annually audited, extending the earlier requirement which was limited to only Life Insurance Companies⁸.
10. Mandatory disclosures: The Erstwhile Ad Regulations and the Master Circular specified various disclosures to be mandatorily displayed on advertisements, such as the entity's full registered name, contact details, IRDAI registration number, UIN of each advertisement, statutory warnings in relation to rebates etc. While the registered name and trade name/monogram are still required, there is a shift in focus towards entities ensuring product suitability and addressing mis-selling practices. Various proactive measures are required, such providing mandatory benefit illustrations for various life insurance products (showing both guaranteed and non-guaranteed benefits). Further, advertisements pertaining to certain more complex life insurance products (such as linked insurance, annuity products and participating insurance) must now explicitly state the difference between these products and traditional insurance, highlight that policyholders bear the investment risk associated with market fluctuations, that projected bonuses are not guaranteed, and various other risk factors.

Concluding Remarks

The IRDAI has introduced various changes to the advertising norms governing the Indian insurance industry, indicating a move towards a more principle-based regulatory framework. The 2024 norms venture beyond mere disclosure requirements, and instead mandate robust internal controls and compliance mechanisms for both Insurance Companies and insurance distributors throughout the advertising process to prevent misleading practices, and requiring Insurance Companies to take on a more proactive approach.

The introduction of a Board approved policy and a mandatory Advertisement Committee, composed of key individuals, also underscores the heightened accountability placed on Insurance Companies to ensure compliance.

Notably, the new norms also reflect the IRDAI's recognition of the evolving advertising landscape, specifically addressing advertising on social media platforms, a significant departure from previous regulations that primarily focused on traditional print and digital media.

While the insurance industry may have perhaps grown accustomed to the prescriptive approach taken by the previous regulations, the new framework pushes entities into taking on a more proactive role. As the IRDAI proceeds with the implementation of these new regulations, the market faces the challenge of recalibrating their processes to ensure compliance to avoid the potential penalties and reputational risks that non-adherence could entail.

Footnotes

1. R4(iii) of the Erstwhile Advertisement Regulations provides:

"4. (iii) maintain an advertising register at its corporate office which must include:

(a) a specimen of every advertisement disseminated, or issued or a record of any broadcast or telecast, etc;"

2. R4(iv) of the Erstwhile Advertisement Regulations provides:

"4. (iv) maintain a specimen of all advertisements for a minimum period of three years."

3. R10 of the Erstwhile Advertisement Regulations.

4. R3(g) of the Erstwhile Advertisement Regulations provides:

"3. (g) "Unfair or misleading advertisement" means and includes any advertisement that:

(i) fails to clearly identify the product as insurance in any insurance advertisement;

ii) makes claims beyond the ability of the policy to deliver or beyond the reasonable expectation of performance;

iii) describes benefits that do not match the policy provisions;

iv) uses words or phrases in a way which hides or underplays the risks inherent in the policy;

v) omits to disclose or discloses insufficiently, important exclusions, limitations and conditions of the policy;

vi) gives information in a misleading way;

vii) illustrates future benefits on assumptions which are not realistic nor realisable in the light of the insurer's current performance; or deviates from the stipulation by the authority through regulatory provisions.

viii) where the benefits are not guaranteed, does not explicitly say so as prominently as the benefits are stated or says so in a manner or form that it could remain unnoticed(...)"

5. R26(10) of the PPHI Regulations provides:

"26. (10) "Insurance advertisement" means and includes any communication issued by insurers, insurance intermediaries, through any mode, related to an insurance product and intended to result in the eventual sale or solicitation of an insurance product from the members of the public, or which urges a prospect or a policyholder to purchase, a policy of insurance."

6. R24(4) of the PPHI Regulations.

7. R5(14) of the PPHI Regulations.

8. ¶5.3.1 of the Master Circular provides:

"Life insurers shall use/publish only "Annual Figures" of Death Claims paid ratios, based on the number of policies alone. These figures shall reflect the entire financial year and shall be based upon:

►Latest IRDAI Annual Report (or)

►Latest Annual Audited final figures submitted to the Authority..."

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