Irda chief urges firms to redesign products, offer simpler policies

The regulator is also working on entry norms for foreign reinsurers in India. Photo: Mint

Mumbai: India’s insurance regulator on Friday urged the industry to redesign products, offer simpler policies and rebalance the utilization of premiums collected from customers to enhance insurance penetration.

“We need to ask what is the total sum at risk. In India, the risk cover is 70% of the total GDP, or about Rs.70 trillion. This should be increased and simpler products like the ones recently announced by the government can help,” Insurance Regulatory and Development Authority () of India chairman said.

“If there is a disbalance between the premium collected and the claims ratio for a particular given product, there is certainly some problem with the pricing of the product,” Vijayan said at the 17th annual insurance summit organized by industry lobby Confederation of Indian Industry (CII).

The insurance industry’s growth has slowed since 2010 when Irda changed norms for unit-linked insurance plans () ensuring that companies do not pay upfront commissions as high as 40% in the first year to agents selling such hybrid insurance products. Following the move, the number of insurance agents came down from 2.9 million in 2010 to 2.2 million in 2014.

Vijayan said Irda is currently reviewing the existing expense management norms in Ulips once again to ensure that an insurer’s expenses are capped in such a way that it influences the upfront commission for the agent and mis-selling of policies is curbed.

Vijayan said the insurance regulator should be able to announce the modified norms in a few months, along with certain key changes in norms on the investment structure for Ulips. “Irda is working on it and by December the changes should be announced,” he said.

The regulator is also working on entry norms for foreign reinsurers in India. Vijayan said following the latest hike in the foreign direct investment (FDI) limit in insurance to 49% from 26%, at least eight foreign reinsuers had met Irda.

Reinsurers are companies that provide financial protection to insurers by taking over risks that are too large for insurance companies to handle on their own.

“By October, Irda should be able to announce the entry norms for foreign reinsurers in India,” Vijayan said.

Following the FDI hike in insurance, several life insurers have expressed their plans to change their ownership and shareholding structures to be able to access higher foreign capital infusion to support business expansion.

However, an ambiguity in the fine print of the newly announced FDI norms involving management control and ownership has so far prevented insurers to execute the planned changes in the shareholding structure, post the FDI hike.

The new FDI norms in insurance state that ownership and management control in an insurance firm must remain in local hands all the time. Since several Indian insurance firms are promoted by entities that are defined as predominantly foreign at the parent level due to their shareholding structure, the definition has prevented such firms to gain from the FDI hike.

Vijayan said 4-5 insurance firms have approached Irda, post the FDI hike, to discuss the issue of management control and how it is coming in the way of their original plans to change the shareholding structure.

“We will soon put out the norms to bring clarity on the issue of management control post the FDI hike. The amendments will be announced under the corporate governance norms stipulated by Irda,” he added.

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