No immediate worry about solvency due to surge in Covid claims: Irdai chief

Irdai Chairman Subhash Chandra Khuntia talks to Subrata Panda on a range of subjects including shareholding of banks in insurance firms

The insurance sector fared better than expected, in terms of growth, in financial year 2020-21 (FY21). In an interview, Subhash Chandra Khuntia, chairman of the Insurance Regulatory and Development Authority of India (Irdai), talks to Subrata Panda on a range of subjects including shareholding of banks in insurance firms, and increase in term plan prices. Edited Excerpts:
 
Is Irdai talking to Reserve Bank of India about capping the stake of banks in insurance companies?
 
There is a lot of synergy between the business operations of banks/non-banking financial companies (NBFCs) and insurance companies. Bank branches are spread across the country and can provide much larger customer access to insurers. Banks augment their revenue through commission income. The process leads to an increase in insurance penetration and insurance inclusion, while providing additional resources to banks. As the insurance penetration in India is about half the world average, there is huge scope for growth.

 

Thus, banks would benefit as promoters of insurance companies from the expected increase in their valuations. Irdai has had a discussion with RBI on the issue and both are of the general view that the decision on shareholding of banks in insurance companies should be based on commercial considerations alone.
 
In the Budget, the Foreign Direct Investment (FDI) cap in insurance was raised to 74 per cent. How much impact will this have?
 
Given the growth potential of the sector and the capital required for this, there is significant scope for absorbing foreign investment. It should be possible to attract more than ~25,000 crore of FDI. Besides, the increase in FDI limit is also likely to attract new foreign players to start new companies as the Indian ownership and control clause has been removed after providing necessary safeguards. Further, six insurers are already listed and foreign funds can be attracted to the insurance sector in the form of portfolio investments at market prices.

 
General and health insurers have seen huge Covid claims. Is there a concern that this may erode their capital?
 
The authority is regularly monitoring the regulatory capital and solvency position of the insurers and, barring three PSU general insurers, which have been given some forbearance, all the remaining are fully compliant with the requirements. The central government has also provided capital support to these three PSU insurers to improve their capital base. So there is no immediate cause of worry.
 
Term insurance rates are hardening. Is there a concern that it may become unaffordable for retail customers?

 
Term insurance premium rates depend to a large extent on insurers’ expectations on life expectancy. As part of the risk management process, they transfer a proportion of the mortality risk to the reinsurers. Thus, the rates are influenced to some extent by the experience of reinsurers. However, the present situation should not lead to a steep hike in premium. Insurers are expected to review their reinsurance arrangements periodically as a part of their internal monitoring and control framework.
 
One of Irdai’s committees recommended a pandemic pool. Has there been any progress on that?
 
Pandemic risk is a systemic risk that is too large to be handled independently by any one insurer. Therefore, the working group constituted by Irdai recommended this pool as a partnership between insurers/reinsurers similar to the terrorism and nuclear pools. We are discussing the matter with various stakeholders, including the government, regarding the strategy to operationalise the concept.

 
How do you view the performance of the insurance sector in the past one year?
 
The pandemic has affected almost every sector and insurance is no exception. It suffered negative growth in the first two quarters. However, with necessary regulatory interventions to enable business continuity, and with the hard work put in by insurers, intermediaries, agents, and other stakeholders, the sector has bounced back, developed resilience, and closed the financial year with remarkable positive growth rates. The life insurance sector grew 11.2 per cent during FY21 (as against 11.7 per cent last year).
 
Despite the severe slump in motor and crop segments, the non-life sector grew by 5.2 per cent (as against 11.5 per cent last year). The total insurance premium for the year amounted to ~8.3 trillion, registering a growth of 9.7 per cent (as against 11.6 per cent) last year.