Insurance regulator may focus on small policyholder this year

By Venkatachari Jagannathan, IANS,

Chennai: 2010 will see India’s insurance regulator coming of age and focusing on how to provide maximum benefits to the average policyholder, industry watchers expect.

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The Insurance Regulatory and Development Authority (IRDA) had a big year in 2009, coming out with several regulations including:

* the cap on charges levied by firms on their unit-linked insurance policies (ULIP),

* the solvency margin they have to keep,

* payment made to intermediaries,

* corporate governance,

* public disclosure, and

* allowing health plus life insurance policies.

In 2010 the primary action expected is to refine the game changing regulation that capped the charges levied by the insurers on their ULIPs to make it relevant for a majority of the policyholders.

“In addition, guidelines for aligning financial reporting with IFRS (International Financial Reporting Standards), risk based capital, calculation embedded value (current value of the future profits) and corporate governance are expected this year,” G.N. Agarwal, appointed actuary of Future Generali India Life, told IANS.

“This year IRDA is expected to drive the focus on customer value tweaking the cap on charges regulation,” a high-ranking official of a private life insurer told IANS on condition of anonymity. IRDA will also take a strong stand against the swelling of the insurers’ kitty when a policyholder is forced to surrender his policy, he said.

R. Krishnamurthy, managing director of global consultancy firm Towers Watson’s insurance and financial services division, said: “We can expect IRDA to play an activist role in 2010. The IRDA and SEBI (Securities and Exchange Board of India) are likely to work out joint initiatives to control the mindless growth of ULIPs and demand more accountability from the players.”

Last July the IRDA was forced to come out with a regulation for capping the charges on ULIPs on the back of SEBI abolishing the entry load on mutual funds. The pension regulator unveiled the new pension scheme with very low fund management charges.

“However, life insurers have come around the regulation by offering the benefit only to policies that are held to maturity. Considering the fact that majority of the ULIPs are unlikely to be held till maturity, policyholders will not see any improvement in their value proposition,” an industry official told IANS.

IndiaFirst Life Insurance’s Managing Director P. Nandagopal said: “It will be more meaningful if the benefit of capped charges is available on policies that are held for 10 years and above. It should be noted life insurance is a long-term protection plan and not a short-term investment instrument.”

“Escape routes like offering marginal guarantees and loyalty additions must be discouraged.” he added.

“Insurers are not clear as to why charges were capped. If it is the high payout to distributors, then IRDA which has been collecting data on payment made to them should act,” a high- ranking official of a life insurer told IANS.

Expense ratio and persistency of the policies (continuity of a policy) is yet another issue that IRDA is expected to focus on this year, industry officials say.

Malay Ghosh, president of Reliance Life, told IANS: “As the life insurance industry enters a new decade, I think IRDA will lay emphasis on expense and persistency management as the key drivers of profitability.”

Private life insurers suffer a bad persistency/renewal ratio with 25 percent of policies lapsing. This signals large-scale mis-selling by agents and also points to the exceeding limits on management expenses laid down by the Insurance Act.

(Venkatachari Jagannathan can be contacted at [email protected])