Embedded value: The new insurance regulator’s to-do list

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Published: February 23, 2018 3:26:26 AM

Doubling the insurance industry’s growth rate and aligning products to the changing demography will be the top priority for TS Vijayan’s successor

TS Vijayan, insurance regulator,  Hari Narayan, Irdai,  insurance professional, new insurance regulatorVijayan favoured a regulatory structure aligned to international best practices, controlling mis-selling and protection of policyholders, for reviving the traumatised industry.

This week, the fourth insurance regulator completed his tenure. This was the first time the post had been held by an insurance professional. A major policy change by the then government had led to screening of three industry veterans including this writer along with senior bureaucrats. A last-minute decision by the Appointments Committee of the Cabinet put TS Vijayan at the helm of the insurance industry which was under tremendous pressure due to uncertainties regarding regulatory interventions and was struggling to be free from the ghost of mis-selling policies.

High industry expectations

Vijayan had taken over in 2013 amidst high industry expectations. Ease of doing business was the main concern on the part of all the incumbent CEOs. During his very limited interactions with the media he hinted that he believed in slow and steady changes. The industry, it appeared, was no longer going to face disruptive regulations. The sound and fury with which his predecessor Hari Narayan had introduced regulations to control malpractices had helped Vijayan start on a firm footing. He started with the huge advantage of controlling an industry which had been disciplined by his predecessor and which was desperate for a turnaround.

Vijayan favoured a regulatory structure aligned to international best practices, controlling mis-selling and protection of policyholders, for reviving the traumatised industry. He freed insurance intermediaries from the cumbersome process involved in obtaining a licence from Insurance Regulatory and Development Authority of India (Irdai). He announced that health insurance would be a separate vertical and would be treated differently in view of customer interest. This decision
led to a spurt in selling of health policies and today almost one fourth of the country’s population is covered by health insurance protection.

In September 2013, he licensed the insurance repositories, making India the first country to have such a robust system for electronic custody of all insurance policies. During 2014, he approved revision in third-party motor insurance premium to make it realistic. In May 2015, he introduced the concept of insurance marketing firms.
However, Irdai could not inspire insurers to improve performance. The regulator remained busy with the menace of spurious calls and overlooked the emerging needs of the fast-changing demography through innovative products.

Sluggish insurance penetration

Despite huge potentiality the density, penetration and growth of business remained sluggish during Vijayan’s tenure and India’s share in the global insurance premium remained less than 1.5%. The linked business which had pushed life insurance penetration to above 4% during 2010-11 contributed 40% of the total premium but during the last five years it fell down to 13%. Life insurance penetration ratio dipped to 2.72% in 2015-16 from 3.1% in 2013-14. Penetration of the non-life has stagnated at 0.7% during the last five years. Similarly, the share of life insurance premium in total household savings has dwindled from 26% in 2010 to a mere 19% today.

One of the mandates to the insurance regulator is ‘orderly growth’ of the industry. But till now, top five life insurers contribute about 89% of premium in spite of 18 years of regulatory regime. Perhaps there has been systematic neglect of certain issues vital to the development of the sector, thus defeating the expectations of a developing nation aspiring to guarantee ‘ease of living’ to the people. I think the agenda for the next regulator is well defined, doubling the growth rate and aligning products to the changing demography.

The writer is former MD & CEO, SUD Life, an Indo-Japanese JV

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