A decade after liberalisation, the insurance industry is struggling with low penetration levels — 4 per cent of gross domestic product (GDP) in case of life and 0.65 per cent in case of non-life insurance. Insurance Regulatory and Development Authority (Irda) Chairman J HARI NARAYAN tells Shilpy Sinha that while capital should be the focus of life insurers, the non-life business should focus on underwriting profits and reducing dependence on investment income. He does not expect a higher foreign investment ceiling to result in a rush of new players. Edited excerpts:
Are you happy with the way the insurance industry, both life and non-life, have evolved since liberalisation?
At the time of opening up, the idea was to ensure the client emerges a winner in the competitive regime. The introduction of several new products into the market that were earlier not known in the Indian insurance industry, the overall improvement in customer service, the progressive attention paid to customer grievances, are all an indication that the benefits of a competitive regime are being perceived.
Business levels have also grown manifold, as compared to the base figures at the beginning of the liberalised environment. Further, the fact is that the recent financial turmoil that shook several economies globally did not have any direct major impact on the industry. This gives us the confidence that we are strong enough to weather such storms. There are a few issues that need addressing to assume higher standards, but there is every reason to be happy with the way we have progressed since the market was opened for private participation.
What are the areas that you would like insurers to focus on?
We have always been emphasising on the need for the players being well-capitalised. That is the only way to ensure there is no occasion for a failed entity denting the confidence of a gullible policyholder community. Thankfully, there has not been any issue on this and several players are well ahead of the minimum mandated capital requirement. Besides, customer service of the highest order is another priority for us; and it is our intention to ensure insurers take measures to enable policyholders to take an informed decision.
Further, specifically for the non-life industry, it would be my fervent wish to see that the insurers achieve class-wise underwriting surpluses, rather than having to depend on a few classes alone that subsidise others; as also reduce the dependence on investment income to make good the underwriting losses.
The (liberalised) industry is almost 10 years old now. By when do you expect the industry to move to risk-based capital?
There have not been any issues on the solvency requirements of insurers in the Indian domain. However, it is desirable to move towards global practices in due course. The current solvency regime is simple and does not distinguish a risky portfolio from a not-so-risky one. The risk-based capital norms for a company must take into account various risks faced by the insurers and accordingly charge the capital. All this presupposes the existence of a very dynamic and deep database. We have started working earnestly in developing a rich information bureau to support our decision-making. However, in view of the difficulties associated with total shift to a risk based capital regime, implementation of the new standards is likely to take some more time.
Is customer service in claim settlement and mis-selling an area of big concern for the regulator? How do you want companies to address it?
We have always emphasised that customer service must be given top priority by managements. It is unfortunate that, historically, insurance has remained one domain that occupies a prominent place in customer grievances. Aided by the fact that consumer awareness levels are low, there have been many occasions for reported ‘mis-selling’ by insurers. Delays in claims’ settlement and, in some cases, even repudiation of claims are certainly issues that have been bothering the supervisors. We have been progressively attending to such problem areas by taking the lead ourselves, as also by providing support to insurers to ensure the customer is enabled to take an informed decision. It is also gratifying to note that claims-related controversies are certainly taking a southward movement.
How have non-life insurers evolved after de-tariffication (freeing of rate setting)?
Prior to detariffication, it was being argued that in a free market, pricing is an area that needs to be independent; and that tariff (setting) stifles the freedom of a player. The first phase of detariffing was effected in 2007. It was always anticipated that an eventual ‘price war’ would ensue, subject to the limits imposed.
While we have not had an occasion to intervene in the business conduct of the players, prices are bound to settle at sustainable levels. We are presently at that juncture and, hence, the emphasis on consolidating. We expect the industry will hereafter register a steadier, sustainable growth, rather than the rapid increases one got to see immediately after de-tariffication.
No re-insurers have opened shop in India. Is that a concern for the regulator?
It is very essential that insurers themselves have sufficient protection for the risks they assume and to ensure this, availability of re-insurance is very essential. As long as Indian insurers manage to get cover for their risks without much difficulty and at affordable terms; it should not unduly bother us whether there are a good number of re-insurers in the Indian domain. Opening shop in the country is also associated with other limitations like governmental and regulatory approvals; as also their own strategic and business priorities.
Was expansion fair in the case of life insurers, as they are not profitable even after nine years of operation?
It is a universally known fact that life insurance is essentially a capital-intensive industry. Further, the initial expenses associated with opening of offices/branches, geographical expansion, etc, are huge, thereby nullifying all business surpluses made. The break-even period, therefore, in the life insurance business is pretty long and to that extent, there is no need to be unduly worried.
How crucial is FDI (foreign direct investment) for the insurance industry?
In my opinion, a hike in FDI (limits) will ensure a more efficient insurance sector. Although I do not expect several new players to rush for joint venture tie-ups if the cap on FDI in insurance is raised, existing players may increase their stake, which, in turn, will enhance FDI inflows. Capital has, so far, not been a major constraint for the insurance industry, given the way they have been expanding their business. Insurers need capital to meet unexpected claims, expense over-runs and investment losses.
And, we do see some strain among Indian partners in raising capital whenever there is a call for greater shareholder funds. A hike in the FDI cap would help. It is also hoped that the hike in FDI cap would help customers with competitive products, more options and better service levels.
