Life Insurance Council secretary general S V Mony tells Venkatachari Jagannathan in an interview that great days are ahead for the insurance industry
The Insurance Regulatory and Development Authority (IRDA) urgently needs more qualified staff, says Life Insurance Council secretary general S V Mony, as the regulator has a lot of important work to do. The council is in the process of preparing a code of conduct for life insurers, in the wake of widespread market malpractice in selling Keyman insurance policy. IRDA had to intervene to set right the situation. "That apart, the government should encourage life insurance through suitable tax incentives," he says.
Excerpts from an interview:
Looking back over five years of liberalisation, what is the performance of the private players in the life insurance industry?
The market has grown at a CAGR of over 30 per cent in terms of new business premium. The new players have set very high standards of customer care and responsiveness. A fair part of the credit for this must be given to the thoughtful manner in which customer service regulations have been framed by the regulator. These five years have seen the introduction of new and innovative products, including unit linked insurance policies (ULIP).
The basic need for insurance protection at minimum cost is well met by suitably structured 'term' and 'whole life' insurance products. These were sold minimally earlier; now they are widely marketed. This results in real penetration. Distribution through bank channels, new riders for life insurance cover, etc, are good examples of positive changes in the market in these five years.
An important development is that life insurance has always been at the centrestage in terms of the selling process, customer education and transparency. Never before has life insurance been in the limelight as it is now.That new players have secured more than 25 per cent of the new business is a true reflection of the impact they have made. Pundits predicted not more than 10 per cent, that too in 10 to 15 years! The new players have added around 2,550 offices and the total capital employed is around Rs4,660 crore.
The three main reasons for opening up the life insurance industry were:
Do you think these goals have been achieved?
| ||Funds for the development of infrastructure|
| ||Increasing insurance penetration |
| ||Increasing insurance spread in rural areas |
The main objectives are well on the way to being achieved. Regulations provide that 15 per cent of the investments should be in infrastructure bonds. This is being complied with. But there is still some way to go. We need sufficient numbers and spreads of long-dated government or quality corporate bonds.
Five years is too short a period to come to clear conclusions, but the trend is positive. Companies are complying with the targets fixed by the regulator for rural and social sector insurance. Many have opened offices in second and third tier towns and villages. These are the right trends, and will ensure further development of insurance in rural sectors.
Many companies have appointed non-governmental organisations (NGOs) and self-help groups (SHGs) to distribute insurance through their rural networks. Policies are sold on a group-basis and insurance protection is spreading. Recently, micro insurance has started and this initiative will rapidly increase life insurance penetration in rural areas.
What, in your view are the issues that the government, the IRDA and the Life Insurance Council should address?
The current system of training agents and the examination and certification systems are issues that need resolution quickly. Strengthening the Life Insurance Council to become a self-regulatory organisation (SRO) is also a priority. The IRDA has a variety of detailed and important tasks on its plate. It needs more qualified staff urgently.
The council is preparing a code of conduct for the industry. Areas that need attention are ensuring healthy competition, systematic monitoring of market practices, attending to customer complaints and good sales practices.
Life insurance is arguably the only form of institutionalised savings for the long-term. The government needs to tailor the tax incentive regime to recognise this and encourage long-term savings through life insurance. It has not happened in the last two years. In fact, there is a strong feeing among the cognoscenti - people who have a more extensive and refined understanding - that the emphasis and movement seem to be in the other direction, towards short-term savings. This requires attention at the government policy level.
Do you expect new players to come in?
Yes, at least four are ready even as I speak.
What is the market trend you foresee?
I see faster growth for the industry with more people buying life insurance. While the average premium per policy will go up, the average term of life cover might reduce. ULIP will dominate the market and bancassurance will bring in more sales. I also expect financial planners to become the preferred intermediaries. I expect pensions will play an increasingly important part in individual savings, as tax incentives diminish rapidly.
When do you think insurance companies will come out with their IPOs?
also see : The
high flier: Shikha Sharma, CEO, ICICI Prudential Life
In the next 24 to 36 months, some are likely to come out with IPOs.
trend-setter: Nani Javeri , CEO, Birla Sun Life Insurance
ready for next phase of reforms: C S Rao, chairman,
dark horse: Sam Ghosh, CEO, Bajaj Allianz Life Insurance
exciting five years