Insurance Regulatory and Development Authority (IRDA) chairman, J. Hari Narayan has completed an eventful five year term. He will be remembered as someone who controlled the euphoria of insurers, came down heavily on mis-selling, cut agent commission but also saw the sector losing growth momentum because of a slew of stricter regulations.
New IRDA chairman is yet to be named. But experts believe that his priority should be restoring growth. Experts say that industry needs development to begin with. Regulations can come after IRDA has dealt with dwindling growth.
Following the stringent norms regarding Unit-Linked Insurance Plan (ULIP) in September 2010, the country reported a fall in insurance density in 2011, a first since the sector was opened. There was an increase in insurance density for every year from 2001.
Similarly, insurance penetration had surged consistently till 2009 and slipped in the following years.
Insurance penetration and a deepening reach of insurance products, according to experts should be a continuing activity for the new chairman.
Insurance penetration is less than 4.5% and general insurance penetration is below 1%.
Perhaps, the most difficult task for the chairman would be to maintain a balance between customer welfare and insurer’s growth. Though J. Hari Narayan upheld the customer as supreme and based regulations on customer interest, those in the sector want the new chairman to uphold company growth as well.
Though products like micro insurance may be mandated by the IRDA chairman to serve customers, it is imperative to ensure the right mix in terms of prices and services of each product is maintained. Insurers say that this is required to ensure that their business interests are not hampered.
Insurance companies are looking at bancassurance as a channel of distribution to expand reach. At present, a bank is allowed to tie-up with one life and one non-life insurance company to sell its products. Insurers who entered the sector late lost on the opportunity. Hence, they are scouting for opening of the bancassurance architecture.
However, other institutions including Reserve Bank of India (RBI) have reservations about the IRDA model of letting banks act as agents. Hence, insurers fear that pushing these changes would be Herculean.
Areas such as catastrophe insurance are also expected to become a bone of contention between IRDA and the insurers. Offering mandatory insurance to cover catastrophic events and formulating a catastrophe pool is what some in the sector have been asking.
This has not been finalized, owing to a fear of it leading to a similar consequence as third party motor pool.
The equity investment cap for all insurers has been capped at 15%. While a separate equity investment limit of 30% for Life Insurance Corporation of India (LIC) has been permitted by the government, which owns it, the new chairman will have to clarify the IRDA’s stand on this matter.
Hari Narayan was open about his discomfort with this special status for LIC.
In life insurance products, after the regulatory changes, both ULIPs and pension plans are back to the market but volumes are still low. Experts say that a push from the regulator is needed. ULIPs are good products and insurers are hoping that new chairman will be able to increase commission on it for agents, so that they are incentivised to sell them.
However, while pending reforms might make it a difficult beginning for the new chairman, a lot of tedious work has already been completed by the outgoing chairman. Product guidelines, fixing the surrender charges for policies and altering the commission structure for agents, has been finalized and is on the way to become regulation. Similarly, the notification banning highest Net Asset Value (NAV) products of life insurers have been formulated and only needs to be gazetted.
