FE Editorial : Why was IRDA sleeping?

If this wasn’t enough to alert IRDA that something was seriously amiss in industrial practices, the ‘persistency ratio’ of life insurance policies—the proportion of policy holders who pay their premium after 5 years—has been consistently falling, especially for private sector insurers. That means, after policyholders are finding the policies they’ve bought don’t meet their needs, they are stopping payments on them. That clearly means the fines IRDA puts are so small, this is not making any discernible difference. Which is why, after growing for the past few years, the life insurance business registered a negative growth of 1.57% in the total premium income in 2011-12 as compared to a growth of almost 10% in 2010-11. This is bad news for the industry and speaks poorly of the way the IRDA is regulating the sector. IRDA has come out with some solutions like limiting commissions for agents who don’t have a 50% persistency in the first year—for the sake of the industry, we have to hope this will work.