Three tasks before the new insurance regulator

Published in Mint on 3rd May 2018

The Insurance Regulatory and Development Authority of India (Irdai) has got a new chairman: Subhash Chandra Khuntia, a former chief secretary to the Karnataka government. He will succeed T.S. Vijayan, who retired in February.

Khuntia has his work cut out both in the life and the non-life space. In the life space, Vijayan set up a committee last year to review product regulations, and the committee rightly recognised high policy lapses and high surrender penalties as reputational risks that need to be addressed. The committee came up with 12 key recommendations that include various aspects of life insurance products like better product approval mechanism, widening investments norms, revamping pension business and ways to improve persistence.

There are two savings product categories in the life insurance space: unit-linked insurance plans (Ulips) and traditional plans. While Ulips have undergone reforms—the most significant was clipping down surrender penalties to a bare minimum—traditional plans are still to embark upon a similar journey. Traditional savings plans come with very high surrender costs.

In the non-life space, the big task is to oversee the merger of three public sector insurance companies—National Insurance Co. Ltd, United India Insurance Co. Ltd and Oriental India Insurance Co. Ltd. However, consumer protection will continue to be a dominating theme as there is need for better public disclosure and more product innovation.

We reached out to four experts to tell us the three immediate tasks ahead for the new regulator. Their recommendations touch upon three broad themes of consumer protection, risk-based solvency approach and the need to relax regulations.

Pushan Mahapatra, managing director & CEO, SBI General Insurance

Focus on disclosures, distribution

Disclosures need to improve and one of the ways to do that is to adopt disclosure practices of listed companies. Improved disclosures not only benefit customers and third-party analysts, but also put pressure on insurers to perform more efficiently.

Steps need to be taken to improve penetration and so distributions needs to open up more. For instance, insurers should be able to leverage business correspondents to sell insurance through the bancassurance channel.

Moving on to risk-based solvency will be the next big task and this will put a great deal of pressure on insurance companies to manage their operations more efficiently.

Rohit Jain, India head, Willis Towers Watson

Irdai must address digital space

Insuretech is expanding and is here to stay. Regulations, however, are not keeping pace with the growing popularity of the digital space which is being used in all aspects of distribution, customer service and processes. The larger contours of insuretech need to get defined. Data privacy laws also need to be strengthened.

There is a growing wave of consolidation and the biggest event will be the merger of the 3 public sector general insurers. The regulator needs to keep a watch on merger and acquisition activities and proactively bring out enabling regulations.

The investment landscape needs to open up to tap capital and to improve investment returns.

KS Gopalakrishnan, CEO, RGA (Canada-based reinsurance firm), India

Risk-based solvency is way forward

Regulations need to address protection of policyholders in traditional plans, particularly for those who exit midway.

The industry needs to move to risk-based solvency approach and this journey needs to be put in motion. This approach puts less pressure of capital on a company that’s managed efficiently and has a more efficient product line-up.

It’s been 18 years since the industry opened up and regulations need to be more macro and less prescriptive. More responsibility needs to delegated to the boards of insurance companies and, given the new dynamic digital environment, there should be more freedom to design policies and test products.

Kapil Mehta, co-founder, SecureNow.in

Traditional life policies need reform

Currently, traditional life insurance policies offer returns of 2-4% that are lower than even fixed deposit rates, and if a person wants to exit before the term ends, there are high penalties. They need to be reformed to provide decent returns and an option to exit midway with minimal penalties.

Distribution needs to grow. The incentive structure needs to be freed up as caps on expenses of management are defined.

Grievance mechanism needs to be strengthened. The grievance mechanism only registers complaints, but customers need to approach the ombudsman or the court for adjudication. Ombudsman offices are short staffed with many offices lying vacant.

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