Barkha Shah: Freeing insurance

BACKSTAGE

Some call it a risk, while others consider it a progressive step, but the fact is that the Indian general insurance industry will finally be fully liberalised (detariffed, in legal jargon) from January 2007.

Freeing the general insurance industry from the reins of tariff has been a contentious issue for decades as the earlier experience of detariffing marine insurance has been bitter. Sceptics believe history will repeat itself from January 2007.

C S Rao, chairman of the Insurance Regulatory and Development Authority of India (IRDA), however, says, "The existence of tariffs is contrary to the principles of a free market. So while there is expected to be some confusion in the initial months, we believe that this is the right time to move towards a detariffed regime."

Born in Kakinada, Andhra Pradesh, in May 1943, Rao has had several stints encompassing over 40 years in the government sector. The most satisfying among those, according to Rao, have been the ones where he has seen tangible benefits accruing on the development front like the one when he was involved in the implementation of the cyclone project as the state's finance secretary in 1990.

People who have worked with Rao, say that they have healthy respect for the soft-spoken and committed man. An accessible person who believes in keeping a low profile, is what many claim are his strengths.

Critics consider his work to be more reactive than proactive, but his staunch supporters churn out examples of micro-insurance and money-laundering regulations initiated under his tenure.

While micro-insurance has been Rao's pet project, detariffing is something that he hopes to be remembered for, once he retires. "My focus is on ensuring a smooth transition through regular monitoring and continuous dialogue with the stakeholders. We are now holding meets in various cities to define the role that brokers will play in the detariffed regime."

By November 1, 2006, insurers will have to prepare the first edition of guide tariffs for every sub-class of business. The Tariff Advisory Committee has also been asked to compile data on premiums and claims so that it can be disseminated to the insurers to enable right pricing.

While the existing companies are bracing themselves towards this end, new entities like Bharti-AXA will be foraying into the non-life market after it is detariffed, thus proving that it still remains an attractive option for many. Rao is happy that there is increasing interest from foreign players. In fact, the authority is supportive of increasing the FDI limit from 26 to 49 per cent. The ball is now in the government's court. Rao hopes that by the end of his tenure, he will succeed in making some changes in the health insurance sector as well.