The Insurance Regulatory and Development Authority (Irda) has said it cannot allow the same relaxation on investment norms for private insurers which the finance ministry recently gave to government-owned Life Insurance Corporation of India (LIC). The latter was recently allowed to invest up to 30 per cent in a company by the ministry, up from the 10 per cent hitherto applicable for all.
"The regulator is very clear that the insurance industry has to be regulated on prudential norms. We will not sacrifice those norms," said J Hari Narayan, chairman of Irda.
Queried on the duality, he conceded it was not defensible but he was helpless. "Our view is that it (the finance ministry favour to LIC) is not in conformity with the Act. But I understand the ministry of law has clarified that the view of Irda is not correct. They said the government has the power to frame the investment regulations for LIC. The regulator only operates according to the law enacted by Parliament. If the ministry of law says both are legal, then it's legal. What (can) we do?" he said here on Friday.
Asked if it was case of some being more equal than others, he agreed this was the reality. Private insurers had recenlty sought an increase in the current investment ceiling in a company to 20 per cent, something Narayan had refused to consider.
Product guidelines
Hari Narayan said the revised product design guidelines would be out by the end of this year. "We are working with the industry to figure out a design template about what we wish to see in products and what we don't. The guidelines are in an advanced stage of evaluation. Hopefully, they will become regulations shortly," he said.
If a company wishes to sell a pension product, it must have the responsibility to provide the annuity. If a pension product is not going to end in a pension, then it cannot be called a pension product. Similarly, any life insurance product must have a minimum guaranteed death benefit. Otherwise, it is not a life insurance product. The guidelines would include templates like these, he said.
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"There are certain fundamental principles we cannot compromise on in the interests of policyholder protection," he said.
He said the issues raised by companies in the sector at a meeting with the finance minister earlier this year were already a part of the draft guidelines. However, the meeting helped expedite and also attain a consensus opinion on the direction the regulator and those in the sector wished to go.
The guidelines on bancassurance, the norms under which banks are allowed to sell insurance products, would be ready by the later part of January 2013, according to him.
On whether a bank should sell the products of only one insurance company or more, Hari Narayan said banks had misunderstood the insurance laws. "If banks wish to perform the function of an agent, then ]they can have a tie-up with only one company. Supposing they wanting to tie up with more than one company they should function like a broker, and then this particular bank comes under broking regulations," he said. Banks cannot, he held, say they want to function like a broker but also want to be an agent.
Products in for a change
Hari Narayan said the sector was is in for a change in terms of the kind of products people wished to buy. He cited the experience of countries in Europe and America, where personal incomes were on the rise. Pension and direct savings-oriented products with smaller tenure in those countries had become popular, while endowment products had practically vanished.
"I would think that even in India, increasingly, the trend will be in that direction. It is not yet so clear because traditional products are still selling well. But I think in time this will change," he said.
Trend
The life insurance sector, which has seen a decline in growth over the past few years, has stabilised and there won’t be negative growth hereafter, though growth this year would be close to zero, he said. As the non-life sector is proportionately very small compared with life insurance, unlike in other countries where both are of equal size, growth opportunities in this segment were more, he said. The insurance premiums collected in India were a little less than five per cent of GDP, a healthy number, he said.
Hari Narayan demits office in February. He said he was hopeful of finalising the regulations on the health sector and on micro insurance before the end of his term.