Unlike other regulatory authorities in India, the Insurance Regulatory and Development Authority (IRDA) seems to have acquitted itself quite well during the past five years. The perception that IRDA would be instrumental in shaping the development of the private sector and also regulate the public sector insurance companies, turned out to be unfounded.
In Part 1 of the interview C S Rao, chairman, IRDA, talks about the life insurance segment.
Chennai: "We have reasons to be satisfied with the progress made by the insurance industry in India since liberalisation. The public confidence in the industry is positive today and the industry on the whole is far more dynamic and has scored well on number of parameters," says C S Rao, chairman, IRDA.
This could well be true. The sudden exit of both the promoters of AMP Sanmar Life Insurance Company Limited did not create any panic amongst the company's policyholders. Similarly, the issue of Life Insurance Corporation of India's (LIC) solvency margin was handled carefully. The country's premier life insurer today meets the stipulated solvency norms - though it falls short of the administrative fiat issued by IRDA. Incidentally even Max New York Life Insurance Company Limited did not meet the norms for a brief span.
"Today, there are 15 life insurers of whom14 private life insurers. Similarly of the 12 general insurers operating in the country eight are private non-life insurers. In addition, we have some more applications from prospective insurers with us. The insurance industry has been able to attract foreign direct investment (FDI) of upto Rs1,288.44 crore which is one of the highest in the services sector," explains Rao.
The first year premium of the life insurance industry has grown by 260 per cent to Rs25,350 crore for the year ending 31st March, 2005, as compared to Rs9,709 crore in the year 2000-01.
The non-life insurance industry also witnessed a 180-per cent growth, writing a gross premium of Rs18,095.25 crore in 2004-05 - up from Rs10,087.03 crore in 2000-01.
"Insurance premium per capita in India has increased to $16.90 and overall penetration in India stood at 3.28 per cent of the gross domestic product in 2003. India's overall world rankings in terms of total premium volumes improved from 23rd in 2000 to 19th in 2003 and its share in the world market increased from 0.41 per cent to 0.59 per cent during the same period. We expect the industry to improve the insurance penetration to at least 5 per cent in the next five years," says Rao.
The IRDA has issued micro-insurance regulations to increase the spread of insurance in the country, particularly among the neediest segments.
According to him, the focus on aggressive marketing has made insurance a sunrise industry in the country attracting young talent. "The industry has successfully experimented with new distribution channels and bringing down the transactions costs. While the improvements may not look dramatic, the direction and speed is an indicator of India's emergence on the global scene," he adds. According to him the IRDA will continuously work to develop the market through new ideas and initiatives with inputs from various stakeholders.
In a lengthy interview - covering (a) the life insurance segment and (b) non-life segment and also reinsurance, he puts in perspective the past, present and future of the industry he regulates and guides. Some Excerpts:
Looking back what ups and downs did IRDA go through in regulating the life insurance sector?
The high point in the life side is obviously the large number of private sector players, which the market has been able to attract. The private players have been able to gain the confidence of the consumers and have been able to collect approximately 20 per cent of the new business written by the life insurance companies, which is very commendable.
The life insurers have also added value to the market by introducing a number of new products. There have been some reports of market misconduct such as rebating and mis-selling of keyman insurance covers, which is not good for the image of the industry. We would like the insurers to curb such practices. The life insurance industry has witnessed frequent churning of agents and relatively high rate of policy lapses, which is not a good indicator for the industry.
Lastly, the unit-linked policies (ULIP) have brought a new dimension in the sale of insurance products forcing the IRDA to come out with its own set of guidelines to regulate these products.
What are the regulatory issues that IRDA is currently looking at?
Some of the areas that require greater attention are rural, social and health sectors. The penetration in these sectors is still low given the huge potential and we would encourage the players to exploit it. We have notified the micro-insurance regulations, which should enable the insurers to increase penetration in the forthcoming year.
There are a number of issues, which need to be addressed on the ULIP policies. The IRDA has been working on them. The objective is to protect the interest of the policyholders, particularly in the areas of design of products, transparency with regard to the definition of charges, amount of charges, partial withdrawal, top-up premiums, advocacy issues and sales illustrations, advertisement material and others.
Does the IRDA conduct "mystery shopping" to detect market malpractice like rebating and paying commissions beyond the stipulated rates?
IRDA currently does not do mystery shopping to uncover rebating and payment of commission in excess of levels stipulated in the Insurance Act, 1938.
What have been IRDA's achievements till date vis-a-vis its mandate?
The mission of IRDA is to protect the interests of the insurance policyholders and to regulate, promote and ensure orderly growth of the insurance industry. This required effective legislation. Therefore, in 1999, the governing legal framework was significantly strengthened with the enactment of the Insurance Regulatory and Development Authority (IRDA) Act.
To operationalise various provisions of the IRDA Act of 1999 and the Insurance Act of 1938, IRDA has so far issued 35 regulations including amendments covering all aspects of the insurance business.
As insurance companies are trustees of public money, we adopted a rigorous system of scrutiny of applications based on financial strength, track record and reputation of the promoters, with regard to compliance with regulations and the strength of internal control systems, product innovations, technical and managerial skills, commitment to contribute to India's development as a regional insurance hub and an international financial centre for setting up insurance companies.
In addition the IRDA has laid down stringent norms relating to solvency and has reinforced with appropriate regulations the investment of funds by insurance companies to ensure that they are financially strong.
Along with the liberalisation programme, measures to raise standards of corporate governance and market conduct, strengthening protection of policyholders' interests have also been introduced. This has helped the transition from the state monopoly to free market with remarkable ease.
On the road ahead for the life insurance industry…
The insurance industry has successfully completed the first phase of reforms by having a smooth transition from a state-controlled monopolistic structure to a free market competitive industry and the stage is set for consolidating the gains made in the first phase of reforms.
We expect some segmentation in the market with some companies becoming financial conglomerates, others transforming themselves into niche players. The country is in the midst of demographic changes and an increasing older population will demand annuities and pensions related products.
We expect the life insurance segment to attract more participants. The unit-linked policy will continue to attract more policyholders because of the rise in stock markets and with the announcement of new guidelines by the IRDA. The bancassurance channel will see increasing importance given the reach and the strong relationship between the customer and the banker.
also see : Industry
trend-setter: Nani Javeri , CEO, Birla Sun Life Insurance
days ahead: SV Mony, secretary general, LICI
to read part 2 of the interview
dark horse: Sam Ghosh, CEO, Bajaj Allianz Life Insurance
high flier: Shikha Sharma, CEO, ICICI Prudential Life
exciting five years