J Hari Narayan, chairman of the Insurance Regulatory and Development Authority, 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.
Those in the sector feel restoring growth should be a key priority of the next Irda chief, yet to be named.
Following the stringent norms regarding-unit linked plans 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.
Ashvin Parekh, national leader, global financial services, Ernst and Young, said: What the industry needs is development to begin with. Regulations can come after Irda has dealt with dwindling growth.
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 per cent and general insurance penetration is below one per cent.
Perhaps, the most arduous task for the new chairman would be to maintain a balance between customer welfare and insurers growth. Though Hari Narayan upheld the customer as supreme and based regulations on customer interests, 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. This is required to ensure our business interests are not hampered, said the head of rural and social insurance at a general insurance company.
Bancassurance as a channel of distribution is what companies are vouching for to expand reach. At present, a bank is allowed to tie up with only one life and one non-life insurer to sell its products. Insurers who entered the sector late lost on the opportunity. Hence, they are scouting for opening of the bancassurance architecture.
Some of our peers are not comfortable with the fact that their parent bank would also be able to sell products of other insurance company. The finalisation of the regulation is, hence, bound to be delayed, said a senior executive of a general insurance company involved with product distribution.
However, other institutions, including the Reserve Bank of India, have reservations about the Irda model of letting banks act as agents. Hence, insurers fear 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 finalised, owing to a fear of it leading to a similar consequence as the third party motor pool.
The equity investment cap for all insurers has been capped at 15 per cent. While a separate equity investment limit of 30 per cent 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 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 unit-linked plans and pensions are back to the market but volumes are still low. Experts say a push from the regulator is needed. Ulips are good products and we are hoping the new regulator is able to increase commissions on these for agents, so that they are incentivised to sell them, said the chief executive of a private life insurer.
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 one. Product guidelines, fixing the surrender charges for policies and altering the commission structure for agents, has been finalised and is on the way to become a regulation. Similarly, the notification banning the highest net asset value products of life insurers have been formulated and only needs to be gazetted.