Pension reforms need public debate, says IRDA chairman

Contrary to the hype built up earlier, the liberalised domestic insurance industry is progressing at a snail's pace. While a couple of private life and general insurers have started offering their wares, one is yet to see the fury of competition in its truest form in this industry.

This is more so the case in the general insurance industry and the complaint that is being voiced for this slow progress is lack of proper regulations, especially in the area of brokers, corporate agents, third-party claims administrators (TPA) – mainly for health insurance- bancassurance. It should be stated that as compared to the life insurance sector, the general insurance sector that is subject to more number of regulations.

As the complaint reflects not so favourably upon the Insurance Regulatory and Development Authority (IRDA), domain-B spoke at length with Mr. N. Rangachary, chairman, IRDA, on various issues concerning the underwriting industry. Excerpts:

domain-B: What do you have to say on the perception that nothing seems to be happening in the general insurance sector as regulations for brokers, corporate agents, bancassurance and TPAs are not in place?

N. Rangachary (NR): Let us take the broker issue first. Section 40 of the Insurance Act does not permit payment of commission/brokerage out of premium to any person other than an agent. Hence, it should be suitably amended. The ball is now in the government's court. We have made our recommendations.

The only issue in the case of corporate agents is the stipulation requiring directors of corporates to undergo 100 hours of training and passing the agency examination. We will soon rectify the problem. We are now planning to designate one person in the company to undergo the stipulated training instead of all the directors. This is being implemented in the case of public sector institutions.

But what should be kept in mind is that only persons who have proper agency licence will be allowed to canvass for business, regardless the fact whether he is an individual or works for a company.

In respect of TPAs, the problem area was allowing them to market insurance products. While some insurers (mainly the public sector general insurance companies) are against it, TPAs' demand such facility. We have decided to keep away from this tug of war and left it for the parties to decide the issue amongst themselves.

domain-b: What about companies like Royal Sundaram Alliance Insurance Ltd. tying up with corporates like Sundaram Finance, Amex, Citi Bank, etc. who are now marketing the insurance products when regulations for corporate agents are not in place?

NR: It is not that there are no corporate agents now. I know an instance where two individual agents joined together and incorporated themselves as a company. Some insurers have entered into a memorandum of understanding (MOU) with finance companies, banks, etc. IRDA will certainly look whether the prospective corporate agents are violating any regulations.

domain-B: What about companies like Royal Sundaram Alliance marketing products despite not having an appointed actuary to certify the products?

NR: Originally, we had stated that insurance products have to be certified by an appointed actuary. But we got complaints form general insurers that actuaries were demanding exorbitant fees like Rs.10/15 lakh to certify a single product. On representation from general insurers, we amended regulations permitting the company's legal officer to certify products.

domain-B: Can you tell me more on making it compulsory for insurers to file their claims manual with IRDA as a customer-friendly move?

NR: At the time of introducing a product, insurers have to file with us the product details, pricing methodology and other details but not the claims' manual. We will look in to the claim settling procedures if there are any complaints.

domain-B: Should IRDA waste time and energy in accrediting agent training institutes. Is it not better for the regulator to spend time on larger issues?

NR: It is true that we are spending money and time on inspecting training institutes before giving our approval. It should be remembered that we have to ensure that proper training infrastructure is available. This is because our reputation is at stake as it is us who licence agents.

domain-B: What about pension reforms?
NR: We are now in the process of gathering views from a cross-section of the society on the issue. The basic requirements of an enlightened and vibrant pension system are identification of contributors, absence of government subsidy and pension to all sections of the society. In Singapore, it is compulsory to cut 40 per cent of a person's salary for pension fund. We are contemplating if we can we have such a system here.

Then there are other questions like who is going to administer the pension system, using the existing infrastructure like banks, post offices or create new, allowing mutual funds to manage pension funds, should there be any cap on the number of pension funds and products, periodicity of contribution and minimum quantum, etc.

There should be a debate on abolition of public provident fund (PPF), compelling people to contribute to pension fund, allow scaling down of EPF to enable employees to contribute to pension fund.

domain-B: What about having a separate regulator for pension business as in the UK?

NR: In pension business, there are two phases, accumulation and pay-out. It has been decided that only an insurance company will do a pay-out. With proper guidelines governing the accumulation phase, it is better for the IRDA to regulate the pension sector than a new regulator.

domain-B: Has IRDA selected former UTI chief Dr. S.A. Dave to advise on pension reforms?

NR: No, till now we haven't taken Dr. Dave as our advisor. But we will certainly seek his advice whenever needed.

domain-B: What about IRDA's revenue streams and staffing pattern?

Our source of revenue is the 0.20 per cent levy on premium income of insurers. This can go up to 1 per cent. We have collected Rs.16 crore for this year. On the staffing side, we plan to have staff strength of 54 from the present 16. There will soon be four executive directors to take care of four divisions. We are also recruiting for our IT needs.