The gloves are off. At a time when the life insurance industry is faced with an unprecedented slide in premium collection, its relationship with the regulator-industry seems to be at an all-time low. While the Insurance Regulatory and Development Authority (Irda) is standing firm on its move to usher in sweeping changes to curb mis-selling, insurers say it’s happening all too soon and are reluctant to give up without a fight.
Life Insurance Council, the representative body of life insurance players, has taken up the matter with the government to save the day. Insurance industry sources say the finance ministry seems to be taking its role of an umpire quite seriously and is tracking the developments closely. To be sure, the ministry is lending a sympathetic ear to the industry and agrees that some of the regulatory decisions have indeed played a key role in the unprecedented slide in premium collections in the current fiscal.
A recent diktat from the regulator suggesting several changes in the product designing process has triggered the latest round of face-off, insurers said. In a letter addressed to all life insurance heads and the Life Insurance Council, Irda has proposed wholesome changes in products, group long term covers, products offering “low” insurance covers, single premiums or products with limited premium payment terms, NAV guaranteed products or benefit illustration procedures.(Click here for chart)
Irda Chairman J Hari Narayan said that these measures are required to protect the interest of policy holders and to ensure “orderly” growth of the industry. The regulator is planning to bring in a comprehensive guideline on the same.
"Lately more complex products are being designed and filed for F&U (file and use) clearance with the Irda. In the process of clearing these products, Irda has noticed that the features of several of the products are not in alignment with the best practices and, frequently, lack clarity. The efficiency of product clearance has been constrained by such features,” Hari Narayan said in the letter.
Incidentally, all products, which became money spinners for the industry in recent months, have come under regulatory ire. “Starting from pension plans to highest NAV guaranteed products, or single premium products -- all the popular products have come under Irda's scanner over the last one year,” said a senior executive at a private life insurance company.
Though the regulator feels that these changes are necessary for the long-term interest of the industry, the current numbers in terms of premium collection, tell a different story.
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Since the new regulations pertaining to unit-linked plans and pension plans were introduced in September 2010, sales of life insurance products have been going down. It was expected initially that the industry would require six months to recover, but things didn’t turn out that way. During the April-December period, premiums collected by writing new policies by 24 life insurance players shrank 17 per cent to Rs 71,953.54 crore from Rs 86,698.84 crore reported in the same period a year ago. Also, the number of policies issued was down by more than 11 per cent in the same period. The numbers are expected to remain same by the end of this fiscal.
“It is not easy to realign the business model overnight. The changes for betterment are always welcome, but the regulator should understand that the industry should be given adequate time to adjust,” said K Sahay, CEO & MD, Star Union Dai-ichi Life.
The first showing of resistance from the industry came when none of the private life insurance players introduced pension plans based on the revised guidelines that mandated guaranteed returns. When the pension plans guidelines came into force in September 2010, it was the largest selling product accounting for almost a third of the sales of the life insurance industry. As a result, premiums collected from pension plans have dwindled to Rs 597 crore in the first six months of the current fiscal, compared to Rs 17,675 crore during 2010-11. Also, in terms of the number of policies issued, the share of pension plans has dropped to a mere 0.36 per cent in the first six months of the current financial year, compared to 16 per cent in the corresponding period a year ago. Even though Irda further revised the guidelines, there are no pension plans in the market as on date.
Similarly, insurers, particularly bank-promoted ones, have objected to the bancassurance guidelines of Irda, which recommended zone-wise distribution tie-ups between bank and insurance companies.
"Zone-wise tie-ups will complicate things. It requires a huge amount of commitment from both the insurers and banks to set up a successful bancassurance partnership. To that extent Indian financial system has not matured and in our opinion, banks should be allowed to tie up with one or at the most two insurance companies,” said MN Rao, CEO of SBI Life, which is promoted by country's largest lender State Bank of India (SBI).
Besides, Irda's rigid approach on compensation structures on deals between banks and insurance companies and observation on selling practices have not gone down well with insurance companies. “Generally, group policies are meant to provide insurance at a lower cost. However, banks are promoting these products keeping the interest of the intermediaries in mind,” Irda said.
The government too has been keeping a close watch on the performance of the life insurance sector. Accordingly, it is in the process of setting up advisory groups across segments to discuss issues impacting the sector and finding solutions for these problems. The groups will primarily look into the issues related to growth, product development, insurance penetration and regulations.