Three months into his new assignment, Insurance Regulatory and Development Authority (Irda) Chairman J Hari Narayan is charting the road map for strengthening the regulatory framework and also dealing with the turmoil in the US. He spoke to Falaknaaz Syed about his plans for the sector and his impression about how the financial crisis will impact the insurance sector in India. Excerpts:
Have the Tatas and AIG submitted their reports and do you see AIG selling its stake in life and non-life insurance firms to the Tatas?
No, AIG India has not yet submitted the report. However, we do not see the situation arising, where AIG has to sell the stake in Tata AIG Life and Tata AIG General. If AIG had to sell its assets, it would have done that before it approached the US Federal Reserve. The loan that AIG has received from the US Fed, compared to their assets, is small. AIG may have a cash-flow problem, but they are not that stressed out and so I do not anticipate AIG selling stakes in the two insurance companies in India.
Life Insurance Corporation (LIC) wants a higher limit on equity investment and has also sought other flexibilities. What have you decided?
The new investment norms will apply to future investments of LIC and will not apply retrospectively. The LIC chairman and his team met us to tell us about the constraints they will face, given the volume of investment lined up. Maintaining the prudential norms for exposure is very important. We do not want our insurance firms to be over-exposed. We want to take a conservative line and prefer stability. We are in dialogue with LIC.
When can non-life insurance companies decide the policy wordings on their own?
We need to build a consensus before freeing the wordings and, by December, we hope to do that. One, we need to get a consensus on certain wordings as a number of these terms carry specific meanings. For instance, in India, the word fire as used in insurance includes a whole lot of other perils and not just fire. Two, there are concerns that over time, we have used certain words, which have been examined by courts. Now, if we change them and bring in a new word, again there may be some judicial lack of clarity. So it is also important that the meaning of a word is as given by the court so that it reduces disputes later. We can see how other countries have done it. Besides, Indian documents are written in a stylised, archaic manner. So while we are releasing wordings, we have to work on making the style simpler.
Do you think banks should be allowed to sell products of multiple insurance companies?
At the moment, I am evaluating both the options (sale of single and multiple products). In the bancassurance model, as it stands today, 70-75 per cent of the transactions are with five banks. We also need evidence, which so far is not so forthcoming that the bancassurance model improves service. In case a bank wishes to move to a multi-product, multi-insurance company system, it can do so by setting up a broking company. Broking will come under the (purview of the) insurance regulator. But whether a bank can set up a broking company or not is an issue dealt with by the banking regulator (RBI).
How are you simplifying the wordings of health insurance policies?
We have managed to get a consensus on what pre-existing diseases should mean and that will be a standard across the industry. Another issue is on calculating age, as different companies do it differently. Now, we have a common platform on age. There are some other issues that still need to be sorted out. What is supposed to be covered and what are the circumstances in which a cover is unavailable have to be clearly spelt out. These are the two main elements and the rest is standard stuff.
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Is Irda asking life insurers to reinsure more?
At present, in life, reinsurance is of the order of 2 per cent. It will be healthy for the industry if it is pushed up to 10 per cent. We are talking to life insurers and are suggesting they reinsure more. There are certain advantages you get. One, you get access to useful international expertise. It will enable the development of new products and, to that extent, the risk may be more widely shared. This may be important, especially if you have catastrophic events. It will also provide clarity.
Insurance companies hardly disclose any business figures other than the new business premium. What is Irda doing about it?
We consider it a priority area. We are looking at the governance issues of insurance companies very closely and we will be coming out with appropriate regulations. Also, we are in dialogue with experts such as the Institute of Actuaries of India, chartered accountants, the industry, the (life and general insurance) councils to figure out the range of indices or figures that we would like to publish on a systematic basis, not just premium figures.