The international financial turmoil and the economic slowdown, which hit some large insurance giants like AIG, have also impacted the Indian insurance sector, which currently has 21 life and 20 general insurers.
There has been a dip in the growth rate of the sector, though solvency is not a concern. The challenges in the country remain more basic — widening and deepening insurance penetration and making servicing of claims more efficient, J Hari Narayan, the chairman of the Insurance Regulatory and Development Authority (Irda), tells Ch Prashanth Reddy in an interview.
What is the impact of the current financial crisis on insurance companies?
There has been a slight dip in sales of insurance products. So, the growth rate this year will be slightly lower. Mind you, I am only talking about the rate of growth. In absolute terms, the amount of sales this year is more than the amount of sales last year. We expect that at the end of the year, if the GDP trend continues at the present level, the growth rate will be about 17 per cent compared with 23 per cent last year.
You envisage stable growth of the insurance sector even next year. Are Indian insurance companies insulated from the current global slowdown?
It is not that they are insulated. The global slowdown has affected the sector. There has been a dip, but the dip is not alarming. The growth of the sector reflects that the Indian population is looking for products, which offer them financial security. They may go for insurance as a good option from that point of view.
Is there any need at present to enhance solvency ratios?
At present, there is no need to enhance solvency ratios. But certainly, there is no case to reduce them either.
What regulatory changes are on the cards?
Given the insurance development, which we have seen so far, we don’t find any particular reason why we should intervene in matters that have already been covered. But looking to the future, you find the need for changes.
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For example, there would be — not that there is hard evidence, but based upon the trends worldwide — a trend towards mergers and acquisitions. It may well happen. Therefore, we would like to bring out guidelines regarding the points we have to keep in view while considering merging or acquiring any other insurance company.
What guidelines are you envisaging?
I won’t like to discuss that, but can only assure that by the early part of the next year the draft guidelines we have in mind will be available for a wider discussion.
What developments do you foresee on the terror insurance front?
I expect that the need for protection against acts of terror may perhaps be felt more acutely in the future. Right now, terror insurance is an optional choice, not offered like a standard product.
With more companies, organisations and institutions feeling the need for having that cover, I expect there will be a marginal increase in the terror cover. The kind of products, which will come, will also be more innovative than what we have seen so far.
What are the major challenges before Indian insurance companies?
The major challenge is to widen and deepen the coverage of the insurance sector, particularly so far as health insurance products are concerned.
There is also a need to ensure that servicing of claims from the customer’s point of view is made even more efficient. These would be the two major challenges.
The insurance sector has been deregulated for quite some time now, but problems still seem to continue.
It is not a question of problems continuing. Have a look at the penetration in the insurance sector in terms of per capita insurance. How much is the purchasing capacity of people?
In India, the purchasing capacity is about $40 per capita, whereas in European countries, it goes up to $1,000. That is the difference. On the other hand, it might also reflect the difficulty in transacting business in far-flung areas of the country.
What measures do you think should be taken in this regard?
A large part of these measures will happen towards improving infrastructure for transportation and communication, which are well beyond the role of the regulator. But there are certain measures that we can take. For instance, we can improve or enable sales of insurance products through the Net and use modern technology to reduce costs and increase the reach.
Why are you seeking additional disclosures from insurance companies? Is there any particular reason for this?
There are two reasons: Number one, for good governance. As things stand, companies are not required by law to bring their balance sheets and so on into the public domain. Several companies make it available on their websites.
So, it is not as if they are concealing the information, but there is no specific requirement that it is done. The second level of disclosure is with regard to improving policy-holder safety and protection. More disclosures will help the individual policy-holder make a more informed decision.
Do you foresee any changes in the health insurance segment?
Health insurance is picking up. In fact, it is the single-largest growing segment in the insurance market. I find a lot of sophistication coming up in health products. More and more products are being designed by companies and recently they have relaxed certain requirements of wordings, which will lead to even more innovative products in the interest of the customer.