The insurance industry needs a comprehensive over-haul across segments to boost performance as compliance cost is high and regulatory policy is less development oriented, says a report by former Irdai member.
"The regulatory framework and support system tends to over-regulate. Predictably the cost of compliance is high and regulatory policy is less development oriented," the report prepared jointly by former Irdai member H Ansari and an industry expert Arun Agarwal, said.
The essential elements of 'Ease of doing business' framework have not been incubated within the policy and regulatory framework to establish a credible, proportionate and supportive regulatory regime, the report said.
The report was recently submitted to the government, Niti Aayog and regulator Irdai.
The report has identified areas that need reformatory steps by stakeholders, including policy makers, Irdai, judiciary and insurance players to develop a modern, transparent and progressive industry framework and a global (re)insurance platform.
According to the report, the regulations are prescriptive and rule-based and often there is carping on 'market not mature' and 'data not adequate'.
Further, the regulatory anchors relating to products, pricing, placement and promotion, outsourcing and many more under the banner of protecting policy holders' interest, do not meet modern and global standards which fulcrum on 'Contract certainty and effective litigation', the report said.
The digitisation goals for the insurance industry, the report said, seem to be a far-fetched one.
The big data tech revolution that is setting to shake up insurance, including distribution, process digitalisation, products, pricing and customer engagement where digital will enable customer centricity seem far-fetched in country since these challenge current silos between life, non-life and health and reinsurers as different regulations sit with different priorities, it said.
Commenting on the report, Sanath Kumar, chairman and managing director, National Insurance Company said, "We have found Irdai regulations quite contemporary and has been focusing a little heavily on policy holder protection.
"Their digital initiatives have been dealing with cutting edge technology and insurers have found it beneficial to adhere to. The descriptive regulations are a general trend in the country with Sebi, RBI and Trai adopting it."
"For the past 17 years, there have not been underwriting surplus in Indian general insurance industry and it is because of the long pendency of legal cases in India and the large technical reserves that it entails.
"Yes, there is a capital crunch, especially in the wake of Rs 21,000 crore of Prime Minister Suraksha Bima Yojana (PMSBY)," he added.
The report points out that the industry too has strengthened the current intrusive regulatory mechanisms with investments led rather than underwriting led profits, with life insurance industry delivering returns below the cost of capital for years and non-life insurance industry having the highest combined ratios across developed and emerging countries for last many years.
Lack of profitability and underwriting disciplines, the report goes on, means that the right talent not attracted and there is virtually no research spend into lowering the risk thresholds.
The capital accumulation is not enough to fund more growth and the fresh capital is not easy to get-internal accruals, public listing or external borrowing or equity-all of which demand greater control and improved performances.
"Annuities are the future growth areas, especially in view of the introduction of NPS and removal of pensions across many sectors. The structure of guarantees and the taxation of annuities, implying taxation of principle itself is well brought out and needs attention of the government," RM Vishakha, managing director and chief executive, IndiaFirst Life Insurance said.
"While the paper comments on the loss to the customer in case of non par and par products, it does not draw enough attention to the fact that insurance companies carry the risk of long term guarantees in these products, with no control on the market dynamics. The contract to pay a guaranteed amount as income needs to be supported by a contract to pay the premium," she added.
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