Vision is to develop an industry that people trust: IRDA chief
Insurance sector has developed a ‘high brand recall in terms of stability and reliability’ Mr J. Hari Narayan, Chairman, IRDA (Insurance Regulatory and Development Authority), has the reputation of being some one who doesn’t suffer fools gladly — a fact that a number of political bosses learned during his civil services career, and something that the insurance industry also has understood in the past few years.
Known to be a private person with a penchant for independent thinking and ruthless decision making, Mr Hari Narayan came up trumps in a bruising battle with the stock market regulator SEBI (Securities and Exchange Board of India) two years ago over the issue of jurisdiction on ULIPs (unit-linked insurance plans).
A powerful speaker, both on the platform and in private conversations, Mr Hari Narayan was by turns combative and conciliatory during the interview at his office.
Defending the role of the regulator strongly, he did not mince words about what he thought were deplorable practices of the industry.
When asked about the rationale behind some of the recent guidelines which had drawn some industry flak, he argued his case with logic and patience. His explanations probably won’t please everyone. But it was also clear that he has thought through these things and won’t be persuaded easily.
On some issues, he showed surprising flexibility and expressed a willingness to have a re-look at industry concerns, even going so far as to say, “these things are not written in stoneâ€.
On another issue (regarding pensions), he conceded with grace that the wording of the circular could have been clearer and perhaps avoided some misgivings.
The insurance industry, which has been a bit wary, can draw comfort that he has kept the door open and is willing to listen.
Mumbai-born, Mr Hari Narayan is a product of St Stephen’s College in Delhi and Madras Christian College, Chennai where he earned a B.Sc (Hons.) in Physics and M.A. in History respectively.
His subordinates describe him as a tough boss who goes by the rule book but has a human face.
Excerpts from the first of a two-part interview:
What is the vision you have for the industry? And what is the direction that you want the industry to take?
The growth of insurance industry, particularly the life industry, is deeply intertwined with the growth of the economy as a whole and, in particular, the per-capita income. The returns one can expect are influenced by the stock market, and the prevailing interest rate regime, which perhaps reflects the inflation in an economy.
My vision for the industry over the next three years is, therefore, tempered.
In the prevailing circumstances, the regulatory approach is to nudge the industry in a direction which enables it to ride out difficult times, by reducing expenses and to encourage practices which would increase the confidence policyholders place in the industry.
The one remarkable fact about the economy is that the insurance industry has, over time, developed a high brand recall in terms of stability and reliability.
This is no doubt due to the excellent work of LIC and its management. I wouldn’t like us to compromise that. It would be a great loss.
So the vision that I have is to contribute to developing an industry that the people of India trust. Everything else is minor. If the people don’t have trust, then no amount of regulatory tweaking is going to help.
There is an industry perception that IRDA is too much into micro-managing. Your regulations on agency management — specifying the square feet of agency space, or bancassurance regulations, saying that the man-in-charge must report to the bank’s MD — are cited as proof. What is your response?
The world has adopted two approaches to regulation. One is the ‘rule-based’ approach and the other is the ‘light touch’ or ‘principle-based’ approach to regulation. Both approaches have their undoubted merits.
In India, the philosophy is generally of a ‘rule-based’ approach to regulation. Such an approach has generally stood the test of time as there have not been any insurance collapses in India which were quite frequent in earlier days, that is, prior to nationalisation.
The recent financial crisis has led to a re-examination of the regulatory approach, particularly in those domains which had adopted the ‘light touch’ or ‘principle-based’ approach to regulation.
One ought not to develop an ideology-based approach to regulation as countries have different development trajectories and what may be eminently suitable to one may be inappropriate in another. But having said this, I am firmly of the view that micro management has to be eschewed and it has seldom worked.
The IRDA has certainly specified certain space requirements for institutions which conduct agent training and these are largely in line with the general prescriptions for educational institutions in the country. Coming to the requirement that the ‘man-in-charge’ of bancassurance operations should report to the MD of the bank, this is not an example of micro management.
It is rather the requirement of sound management and has been proposed to ensure that the senior-most executive of the bank involved in bancassurance is aware of the demands such business places upon the bank and makes available the necessary resources to ensure that the business is carried on smoothly and without compromising the interests of the policyholders at any time.
I may point out that in very many crucial functions of corporate governance such reporting relationships have been mandated.
There have been lot of complaints that there are delays in your product approval process. Can it be done faster?
The IRDA is aware that the product approval process is time consuming. In the non-life sector, of the 93 non-life non-health products which have been filed for clearance, 61 have been cleared.
There are 231 health products filed, of which, 191 had been cleared. On the life side, 243 products were filed and 126 have been cleared.
The average time taken for clearing a non-life product is 106 days and for life product, it is 99 days.
We are constantly reviewing these processes and we hope to be in a position to clear products within 60 days of filing.
But it is important to recognise that the time taken for clearing a product is also related to the complexity of the product and the clarity of the filing made by the insurance company.
Why are you against net asset value (NAV)-guaranteed products? Some companies have stopped selling these products. What is your thinking on this?
The IRDA has certain reservations on NAV guaranteed products as they tend to be pro-cyclical in a falling market and further are challenging in terms of communication of features of the product to a prospective policyholder.
On the other hand, such products do have their strengths and the IRDA is, at present, in the process of evaluating them in terms of inherent risks and benefits.
There is no doubt that we have the responsibility to bring clarity on such products and I am confident of doing that shortly.
There is a complaint that there are frequent changes in your regulations leading to difficulties in planning for the long term. Why is this happening?
That is not really true. We made one dramatic change in ULIPs, yes. But that was because ULIPs were in danger of becoming a source of surrender income. And I don’t think that was the purpose of insurance at all. That had to be changed.
I am glad we changed it. We had to give a shock to the industry to get out of the practices that they had developed. And, to a large extent, they responded well.
The second shock was pensions. That’s about it. Otherwise, nothing else. You see, we are in the infancy of building our pension system.
The NPS has just started. Most of the pensions till now were in the government and public sector.
Now that is changing as there are a larger number of people earning in the non-governmental sector. They are getting more aware. Families are getting smaller. Cultural values are changing.
In today’s world, people don’t believe they’ll be looked after by their kids. If it happens, excellent. But you can’t count on it. That is why there is greater need for them to have pensions to support them at a time when they can’t earn.
If these changes are going to cause some pain in the short-term, so be it. We want people with stamina to be here.
So, you are testing them?
(Laughs) Yes! I am saying, “Better become fitâ€.
How is the regulator building manpower capacity — in view of talent shortages and poor pay scales when compared to industry players? Is there a medium-term plan on how to attract top management talent to the regulatory side? Is it possible to outsource or look at lateral entry?
Certain types of skill sets which are essential for this industry remain in short supply in India because of the lack of the spur of competition, particularly in the field of actuarial sciences.
While you seem to understand the problem largely in terms of pay scales and remuneration, actuarial talent is nurtured only by experience which takes time.
The IRDA is working in close collaboration with the Institute of Actuaries of India to address this issue. In other skill sets, the shortage of skilled manpower are not so keenly felt as it is in actuarial sciences.
The present policy of the IRDA provides substantial room for lateral entry into the regulatory system.
Outsourcing of such cardinal activities are not contemplated as IRDA deals with information which is sensitive and confidential.
Known to be a private person with a penchant for independent thinking and ruthless decision making, Mr Hari Narayan came up trumps in a bruising battle with the stock market regulator SEBI (Securities and Exchange Board of India) two years ago over the issue of jurisdiction on ULIPs (unit-linked insurance plans).
A powerful speaker, both on the platform and in private conversations, Mr Hari Narayan was by turns combative and conciliatory during the interview at his office.
Defending the role of the regulator strongly, he did not mince words about what he thought were deplorable practices of the industry.
When asked about the rationale behind some of the recent guidelines which had drawn some industry flak, he argued his case with logic and patience. His explanations probably won’t please everyone. But it was also clear that he has thought through these things and won’t be persuaded easily.
On some issues, he showed surprising flexibility and expressed a willingness to have a re-look at industry concerns, even going so far as to say, “these things are not written in stoneâ€.
On another issue (regarding pensions), he conceded with grace that the wording of the circular could have been clearer and perhaps avoided some misgivings.
The insurance industry, which has been a bit wary, can draw comfort that he has kept the door open and is willing to listen.
Mumbai-born, Mr Hari Narayan is a product of St Stephen’s College in Delhi and Madras Christian College, Chennai where he earned a B.Sc (Hons.) in Physics and M.A. in History respectively.
His subordinates describe him as a tough boss who goes by the rule book but has a human face.
Excerpts from the first of a two-part interview:
What is the vision you have for the industry? And what is the direction that you want the industry to take?
The growth of insurance industry, particularly the life industry, is deeply intertwined with the growth of the economy as a whole and, in particular, the per-capita income. The returns one can expect are influenced by the stock market, and the prevailing interest rate regime, which perhaps reflects the inflation in an economy.
My vision for the industry over the next three years is, therefore, tempered.
In the prevailing circumstances, the regulatory approach is to nudge the industry in a direction which enables it to ride out difficult times, by reducing expenses and to encourage practices which would increase the confidence policyholders place in the industry.
The one remarkable fact about the economy is that the insurance industry has, over time, developed a high brand recall in terms of stability and reliability.
This is no doubt due to the excellent work of LIC and its management. I wouldn’t like us to compromise that. It would be a great loss.
So the vision that I have is to contribute to developing an industry that the people of India trust. Everything else is minor. If the people don’t have trust, then no amount of regulatory tweaking is going to help.
There is an industry perception that IRDA is too much into micro-managing. Your regulations on agency management — specifying the square feet of agency space, or bancassurance regulations, saying that the man-in-charge must report to the bank’s MD — are cited as proof. What is your response?
The world has adopted two approaches to regulation. One is the ‘rule-based’ approach and the other is the ‘light touch’ or ‘principle-based’ approach to regulation. Both approaches have their undoubted merits.
In India, the philosophy is generally of a ‘rule-based’ approach to regulation. Such an approach has generally stood the test of time as there have not been any insurance collapses in India which were quite frequent in earlier days, that is, prior to nationalisation.
The recent financial crisis has led to a re-examination of the regulatory approach, particularly in those domains which had adopted the ‘light touch’ or ‘principle-based’ approach to regulation.
One ought not to develop an ideology-based approach to regulation as countries have different development trajectories and what may be eminently suitable to one may be inappropriate in another. But having said this, I am firmly of the view that micro management has to be eschewed and it has seldom worked.
The IRDA has certainly specified certain space requirements for institutions which conduct agent training and these are largely in line with the general prescriptions for educational institutions in the country. Coming to the requirement that the ‘man-in-charge’ of bancassurance operations should report to the MD of the bank, this is not an example of micro management.
It is rather the requirement of sound management and has been proposed to ensure that the senior-most executive of the bank involved in bancassurance is aware of the demands such business places upon the bank and makes available the necessary resources to ensure that the business is carried on smoothly and without compromising the interests of the policyholders at any time.
I may point out that in very many crucial functions of corporate governance such reporting relationships have been mandated.
There have been lot of complaints that there are delays in your product approval process. Can it be done faster?
The IRDA is aware that the product approval process is time consuming. In the non-life sector, of the 93 non-life non-health products which have been filed for clearance, 61 have been cleared.
There are 231 health products filed, of which, 191 had been cleared. On the life side, 243 products were filed and 126 have been cleared.
The average time taken for clearing a non-life product is 106 days and for life product, it is 99 days.
We are constantly reviewing these processes and we hope to be in a position to clear products within 60 days of filing.
But it is important to recognise that the time taken for clearing a product is also related to the complexity of the product and the clarity of the filing made by the insurance company.
Why are you against net asset value (NAV)-guaranteed products? Some companies have stopped selling these products. What is your thinking on this?
The IRDA has certain reservations on NAV guaranteed products as they tend to be pro-cyclical in a falling market and further are challenging in terms of communication of features of the product to a prospective policyholder.
On the other hand, such products do have their strengths and the IRDA is, at present, in the process of evaluating them in terms of inherent risks and benefits.
There is no doubt that we have the responsibility to bring clarity on such products and I am confident of doing that shortly.
There is a complaint that there are frequent changes in your regulations leading to difficulties in planning for the long term. Why is this happening?
That is not really true. We made one dramatic change in ULIPs, yes. But that was because ULIPs were in danger of becoming a source of surrender income. And I don’t think that was the purpose of insurance at all. That had to be changed.
I am glad we changed it. We had to give a shock to the industry to get out of the practices that they had developed. And, to a large extent, they responded well.
The second shock was pensions. That’s about it. Otherwise, nothing else. You see, we are in the infancy of building our pension system.
The NPS has just started. Most of the pensions till now were in the government and public sector.
Now that is changing as there are a larger number of people earning in the non-governmental sector. They are getting more aware. Families are getting smaller. Cultural values are changing.
In today’s world, people don’t believe they’ll be looked after by their kids. If it happens, excellent. But you can’t count on it. That is why there is greater need for them to have pensions to support them at a time when they can’t earn.
If these changes are going to cause some pain in the short-term, so be it. We want people with stamina to be here.
So, you are testing them?
(Laughs) Yes! I am saying, “Better become fitâ€.
How is the regulator building manpower capacity — in view of talent shortages and poor pay scales when compared to industry players? Is there a medium-term plan on how to attract top management talent to the regulatory side? Is it possible to outsource or look at lateral entry?
Certain types of skill sets which are essential for this industry remain in short supply in India because of the lack of the spur of competition, particularly in the field of actuarial sciences.
While you seem to understand the problem largely in terms of pay scales and remuneration, actuarial talent is nurtured only by experience which takes time.
The IRDA is working in close collaboration with the Institute of Actuaries of India to address this issue. In other skill sets, the shortage of skilled manpower are not so keenly felt as it is in actuarial sciences.
The present policy of the IRDA provides substantial room for lateral entry into the regulatory system.
Outsourcing of such cardinal activities are not contemplated as IRDA deals with information which is sensitive and confidential.
N. S. Vageesh l G. Naga Sridhar
http://www.thehindubusinessline.com/industry-and-economy/banking/article2863331.ece?ref=wl_industry-and-economy
http://www.thehindubusinessline.com/industry-and-economy/banking/article2863331.ece?ref=wl_industry-and-economy
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