The reserve or provisioning requirement for the third-party commercial motor portfolio of general insurance companies might be raised to 175 per cent from 153 per cent. If implemented, the industry might take a hit of Rs 10,000 crore.
The Insurance Regulatory and Development Authority (Irda), based on feedback from an independent review by a UK Actuary, might take a call on this over the next few weeks. The earlier report “underestimated” the total losses on the account of commercial third-party losses, Irda chairman J Hari Narayan said at the CII’s 14th Insurance Summit here .
“The UK actuary report, which studied the asset-liability of the third-party motor portfolio, has indicated that industry requires higher provisioning. They have given us a range. We are discussing with the industry,” he added.
According to industry sources, the UK actuary has prescribed a reserve requirement of 205 per cent on the third-party motor pool portfolio. The UK actuary was assigned with the task after the earlier committee report by actuary K P Sharma suggested a provisioning of 153 per cent. Consequently, in March 2011, Irda increased the provisioning requirement from 136 per cent to 153 per cent.
The insurance regulator is also considering tweaking some of the investment norms for life insurance companies. The move assumes importance as the returns provided by different insurance companies on similar instruments are not "consistent”.
“While examining the returns provided by different insurance companies on various schemes we have found that the difference between a highest return and lowest return is nearly four times. That is, on an average, annual returns on certain schemes could be as high as 27 per cent, whereas some companies provides return as low as six per cent. This gap is worrying,” Hari Narayan, said.
He added that though the proportion invested in equities and in debt might not be changed, but investments norms in certain categories of debt and securities might be tweaked.
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"By and large the proportion of funds invested in debt and equities by the Indian insurers are similar to those followed by global insurance companies. So there is no need for major changes, but there might be some tweaking in certain securities bucket based on volumes,” Hari Narayan said in the sidelines of CII Insurance Summit.
MICRO INSURANCE
The insurance regulator is also contemplating some wholesale changes in the micro insurance regulations, to increase its penetration in the rural areas as the existing norms has failed to deliver the desired result. To start with Irda might change the definition of micro insurance where the product might be defined on the ticket size of the premiums rather than the existing practice where the definition is based on pay-outs.
“Under the current framework any pay-out of less than Rs 50,000 is considered as micro insurance policy, which is not the right way as the premiums in some cases are as low as 25 paise. The better way perhaps is to define a micro insurance policy on ticket size say Rs 2,000-5,000. Then the scope for product innovation increases,” he said.
He also added that micro insurance policies should have continuity and to ensure that industry could adopt the concept of “Lead Insurance” on lines of the RBI’s Lead Bank Scheme.