Real meaning of “Insurance is the Subject Matter of Solicitation” or how everyone on the web can be wrong

In which, I try to understand what the phrase “Insurance is the Subject Matter of Solicitation” means, and why every ad has it, and I discover how the blogs of 20 different finance websites (written by marketing types by doing a Google search followed by a copy-paste-in-your-own-words) can be wrong.

Summary: Most Indian finance websites give a ridiculous explanation for this phrase. This phrase, which is found in all insurance advertisements in India, was mandated by IRDA, and it means basically that: “insurance is the product that is being sold by this advertisement, and not any thing else.” The intention is to prevent advertisements from being misleading, and trying to trick consumers into buying insurance while advertising something else (like investment). As of November 4th, 2015, this requirement has been removed by IRDA.

Background

I’ve always wondered why every insurance ad states, “Insurance is the Subject Matter of Solicitation,” and what exactly does this statement mean. Clearly, many other people have had the same question. Because a Google search revealed that many, many websites claim to explain this.

However, I found that all the explanations seemed a little silly. Here is an example:

The Insurance Regulatory and Development Authority has made it mandatory for insurance companies, agents and brokers to announce clearly in all their communication that insurance is the subject matter of solicitation. Translation: insurance isn’t a ready-made standard product like say, a bar of chocolate, that can be sold outright, it has to be discussed, understood. The right offering suited to your specific needs and requirements has to be considered taking into accounts, the terms, conditions and exclusions. Companies can only “offer to sell” it. And what changes with the addition of this simple word?

By way of including this small line, insurance becomes a product that you-the-customer must evaluate carefully after you have understood all its features, rules, conditions and exclusions. The onus of buying an insurance policy with its terms lies with the customer solely.

Or, to quote this Quora answer:

So the meaning of Insurance is a subject matter of solicitation is that Insurance is a financial product which buyer has to ASK FOR, it cant be sold.

Similar answers exist on many other websites. In fact, you could search the internet for hours and find articles and articles that give this same explanation.

Doesn’t anyone else see that the “translation” makes no sense – grammatically or legally? Words have meanings – especially in legal contexts. You can’t just make a sentence mean anything you want it to mean. How does “insurance is the subject matter of solicitation” end up meaning “insurance cannot be sold, the customer must ask for it”?? And even if the sentence did mean that, doesn’t anyone find this totally ridiculous? Have you ever “asked for” insurance, or have you mostly just bought one of the products that the insurance company has in their portfolio? Are our lawmakers really this stupid? And if they are, how come nobody is pointing to any proof (a law or a regulation) which mandates this?

It just bothered me so much that I decided to start digging until I found out where this phrase originated, and what was the intended meaning. I just don’t believe that our regulators are idiots who make up bizarre regulations just to mess with us.

Going to the Source – IRDA Regulations

Being a big fan of going to original sources, I tracked down this phrase to the “IRDA (Insurance Advertisements and Disclosure) Regulations, 2000” notification. (Here’s a pdf that I got off the IRDA website.) This is a document that regulates what advertisements related to insurance can and cannot contain. An important purpose of these regulations is to ensure that advertisements should not be “unfair or misleading.”

Here is what regulation 9 says:

1. Identity of advertiser — Every advertisement for insurance shall:

2. (i) state clearly and unequivocally that insurance is the subject matter of solicitation; and

3. (ii) state the full registered name of the insurer/ intermediary/ insurance agent.

I should note that this entire document is about the rules governing who can advertise insurance, and how. Nowhere does it say anything ridiculous like “insurance cannot be sold; customer must ask for it.” In fact the whole document is mainly about how to sell insurance without misleading customers. It’s clear to anyone reading this document that selling and advertising the sale of insurance is perfectly legal.

In fact, reading the whole document in context (especially when read in conjunction with regulation 2(d)) it is quite clear that:

• “solicitation” in this case means the advertisement itself, and
• the purpose of this line is to ensure that the advertisement makes it clear that insurance is being advertised and not something else.

The second point here makes a lot of sense when you see an actual life insurance ad – a lot of it is focused on the returns you will get if you don’t die. Without this disclaimer, you would think the product being sold is an investment scheme, right? And that is precisely what this warning is supposed to prevent.

“We make it sound like the primary purpose of this scheme is the the returns you will get if you don’t die, but please don’t forget that the real product being sold here is the insurance cover you’re getting – the money you will get if you do die. But we’re going to say it in such opaque jargon that even websites that claim to give you expert financial advice don’t understand the warning.”

In any case, on November 4th, IRDA published an amendment which removed 9(i) from these regulations, so future advertisements are no longer required to have this phrase.

Moral of the Story

So, here are the morals of this story:

• Don’t believe everything you read on the internet. Even if lots of websites agree with each other. Especially if lots of websites agree with each other – that usually means (these days) that they all pretty much copied from each other.
• Going to the original source is a powerful way of getting the real story. I do this every once in a while – I read the original wording of laws (e.g. defamation laws), or court cases, or other legal documents (e.g. India-US tax treaty) – and I always find the results quite instructive.
• The government/bureaucracy is not filled with idiots. They don’t just make up random things. There is always a reason, if you just look at things from the correct angle. So, if something seems idiotic, chances are that you did not understand it properly.
• Note to finance startups/companies – I know that your articles and blogs just exist for SEO purposes and as far as Google juice is concerned, quantity is king, but could you please at least have some sensible finance person take a look at your content and sign off on it to check that you’re not repeating incorrect information?