Irda for FDI hike, to pen norms for ULIPs soon

Pitching for hike in FDI cap from 26 to 49 per cent, insurance regulator Irda on Wednesday said it will soon submit a report to the government for a comprehensive legislation and detariff motor business from 2007. Irda will also unveil separate guidelines for Unit-Linked Insurance Policies (ULIPs) in 2-3 weeks, its chairman C S Rao said on the sidelines of a Ficci insurance conference.

With the economy posting a sustained high growth, he also asked insurers to tap household savings and invest in infrastructure sector.

Since insurers need to infuse more capital to sustain their growth, Irda has been advocating raising the FDI cap so that foreign players could bring in additional funds and Indian partners are not strained. "It need not be repeated. We have always said FDI limit should be raised to 49 per cent," Rao said.

Foreign partners in companies like ICICI Prudential Life, Max New York Life, Aviva and ING Vysya have been demanding hike in FDI cap for a long time.

Government has notified the FDI hike in civil aviation from 40 to 49 per cent and in telecom from 49 to 74 per cent, but is yet to do so for insurance, as it requires amendment in the Irda act.

Apart from the FDI, the finance ministry is also awaiting Irda's report on coming up with a comprehensive legislation on insurance. "We are compiling a report. We will submit it to the government in 2 weeks," Rao said. Irda is in the process of vetting the reports of K P Narasimhan panel and law commission.

To provide a major relief to general insurers, Rao said the motor insurance would be detariffed from January 2007.

Rao said all companies have agreed for a detariffed regime from 2007 but there was some apprehension on the Motor Insurance, especially old vehicles. In this context, Irda proposed "declined motor insurance pool" which will cover the risks of old vehicles.

After the motor insurance business is free from a tariff regime, rao said the tariff for owners damage (od) will come down while it will go up for third party liability (TPL). On the life insurance front, rao said IRDA is going to issue a guideline on ULIPs in 2-3 weeks.

There could also be a minimum lock-in period along with limits on insurance component for every top-up payment and on withdrawals. Speaking at the conference, rao said insurance industry grew by 30 per cent in 2004-05 compared to 10 per cent in 2003-04.

"The main driver of growth in life segment has been ULIPs," he said but added there has been a decline of 8 per cent in the number of policies sold by insurers.