General insurers cant use investment income to sustain bad underwriting

Written by Sitanshu Swain | Updated: Oct 8 2011, 06:04am hrs
A series of drastic regulatory measures over the past one year has transformed the domestic insurance industry. J Hari Narayan, chairman, Insurance Regulatory and Development Authority (Irda), speaks to FEs Sitanshu Swain about the regulators aim to bring about healthy changes in the industry. Its been almost a year now since Irda drastically changed Ulip norms, a move that is said to have pulled down the performance of life insurance companies. Your comments. The objective of revisiting the norms governing Ulips was to ensure that the underlying element of life insurance is ensured for a reasonable policy term. The exercise was well received by the insurance industry. The downward trend in the business growth of life industry, if any, is attributable to certain other extraneous factors, and not the Ulip reforms. The underlying norms, such as the minimum lock-in period, minimum policy term and minimum sum assured are going to help both the retail policyholders and life industry in the long term.

How do you see mis-selling of Ulips, which was one of the primary reasons for the change in regulations

Mis-selling has to be viewed as a larger issue, encompassing all financial services products and not just Ulips. However, to ensure that a policyholder makes an informed choice, Irda has been constantly reviewing the extant regulations and guidelines to keep a tab on the grievances of the policyholders.

Customised benefit illustration requirements, to be executed by all life insurance companies at the point of sale, are in place. In addition, Irda has also prescribed certain enhanced advertisement norms for all life insurance products. It has launched an awareness campaign to draw the attention of the public towards the nuances of Ulips.

While Irda is almost ready with IPO norms for life insurers, none of the companies are ready to go public yet. Would you like to comment on the situation

The existing requirement of having completed a minimum 10 years in the business of insurance will be met by just a handful of players that set shop in the early 2000s. The valuations of some of these companies may enable them to take a call on this matter. While Irda is ready with the IPO norms, it is the major policy decision on the FDI front that would decide the final call to be taken by the insurers.

When an insurer decides to go public with 49% FDI, wont it lead to confusion about the shareholding pattern among the promoters. The domestic partners stake may fall below 51%, with the foreign partner ending up as the major shareholder...

Of course, the Irda is very sensitive to this issue, which is precisely why, in the regulations which we have finalised, the pattern of disinvestment has to be specifically approved by the Irda. We are confident that issues of this nature will be satisfactorily resolved.

There are complaints from the shareholders that Irda has slowed down the product approval process, which is affecting their businesses. Are you doing anything about this

Irda has streamlined the process of product clearance by decoupling the sales literature and proposal form of life products from that of other prudential aspects of file and use. This helps reduce the time taken in clearing the products. However, insurers shall also have to take pro active initiatives in ensuring that the routine shortcomings which have been repetitively raised are addressed well before they are filed with Irda. The overall time lag in India to clear insurance products under file and use is lesser than some other countries. The main focus of Irda is to ensure that a product is not only self-supportive, but also addresses the insurance needs of the larger insuring prospects.

When will you announce the new bancassurance norms What has been the been overall feedback from insurers What will be RBIs role here

We have got feedback from insurers, banks and other stakeholders. Overall, insurers have welcomed the recommendation of allowing a bank to have tie-ups with more than one life or non-life insurers. However, given the mass distribution platform offered by a bank, some stakeholders have argued that the remuneration structure for the bank should be different from that of the individual agent. We will examine the recommendation of all the stakeholders and, then, take a decision. RBI has written to Irda to identify and enumerate the various kinds of losses that are likely to impact the banks during distribution of insurance as an agent, so that banks may be advised to provide for additional capital for the same.

How do you see the situation in the general insurance industry as the companies have suffered losses in 2010-11 despite business growth What are the total losses the industry has suffered in 2010-11 Do you expect improvement in 2011-12

The position of the general insurance industry, given the quantum of the underwriting losses, is certainly not to the Irdas liking despite the good business growth it has exhibited. The investment income cannot be used to sustain bad underwriting.

Irda will not remain a silent spectator to what is seen as the race to the bottom. General insurance companies have been asked to carry out a review of their underwriting policy and strategy. On our part, we are also reviewing the various portfolios of the general insurance companies.

We will take necessary steps to ensure that the companies remain solvent and the policyholders interests are fully protected. The general insurance industry suffered underwriting losses of R10,250 crore (approx) in FY 2010-11.

We foresee a better 2011-12 for the general insurers because:

a) Third-party motor premium rates have been revised and, going forward, will be changed annually, based on pre-determined factors which the Irda will announce every year;

b) General insurers had to provide for significant amounts to take into consideration third-party pool losses, which adversely

impacted the underwriting results of the companies;

c) Premium rates are showing signs of hardening; and

d) General insurers are taking steps to control expenses of management, which will improve their bottom-lines On the whole, I feel 2011-12 will be a better year for general insurers.

Do you think the Indian market has reached a saturation point as no new players have entered in the recent times

Non-entry of new players does not indicate a saturation in the insurance market. It is to be attributed to a wide range of extraneous issues, such as the uncertainty enveloping the financial markets around the world, including India; the expected revision of the FDI limit, and so on.