Cheaper distribution channels needed : IRDA chief

01 October 2004

Inaugurating the day-long international conference on `Regulatory Best Practices and Emerging Trends in Life Insurance' organised by the American Chamber of Commerce (AMCHAM) here on Thursday, the IRDA chairman, C S Rao, said the existing regulatory laws do not provide for any flexibility for speedy and effective response to changing circumstances. Since the regulator facilitates the process of transition from the monopolistic market to a competitive economy, its form, functions, and scope cannot be static.

"It is possible that as services are unbundled and competition increases, certain areas presently regulated may at some future date call for no regulation. Secondly, as an economy matures and becomes sophisticated, the approach to regulation may have to change. Ideally, therefore, there should be some provision in the laws or mechanisms to ensure that the scope and nature of regulation is continuously under review," the IRDA chairman said.

Noting that the Indian insurance industry relies heavily on the traditional agency distribution channel, Rao suggested the need to develop alternative distribution channels of independent intermediaries, bancassurance, direct marketing, the internet, and telemarketing — all of which cost less and enable reaching a wider target market.

Stating that the key challenge in providing insurance to low income households is minimising transaction costs, Rao said the insurance cover in the rural areas at present is quite low for both producer and consumer services.

He stressed the need to promote micro-insurance initiatives for achieving increased penetration and spread of insurance in the country.

The AMCHAM chairman, Sunil Mehta, said changing market conditions result in changes in business models and customer requirements and hence the regulations have to keep pace with these changes to ensure that the insurance industry continuously adopts best practices.