The Insurance Regulatory and Development Authority of India (IRDAI) has pledged to facilitate ‘insurance for all by 2047’, where every citizen has good life, health, and property insurance coverage. But the IRDAI needs to answer a few basic questions.
Insurance for all by 2047 is the right vision for a nation like India. To achieve this, IRDAI focusses to strengthen its three main pillars: insurance providers, distributors and customers. This is proposed to be done as follows:
- having authentic products obtainable to customers
- forming a solid complaint redressal system
- making it simpler to carry out business
- guaranteeing supervisory design allies with market dynamics
- urging innovation, competition and distribution competences
- mainstreaming technology
- marching to a principle-centred supervisory system.
There is an elephant in the room
The Indian insurance watchdog is not addressing the elephant in the room –the obscenely high commissions and operational expenses of insurance brokers, which results in poor value-proposal for policyholders. This needs to be addressed first before moving on to insurance for all. At present, insurance products are of undue cost and low worth to the policyholders. Good product offers are still at the mercy of distributors and excessive commissions.
IRDAI is deliberating on giving more liberty to insurance firms by eliminating segmental thresholds and levying a single general cap for overheads of management in general and health insurance. The present levels for agents’ commission are intended to be erased, and the limit is to be connected to the general overheads of management. This may not be beneficial for insurance policyholders who already shoulder the burden of commissions much greater than mutual funds and bank deposits.
Additional mediums for capital infusion
Presently, many life-saving policies in force have the same or lesser sum assured than that provided by Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJY). The insurance watchdog has done away with the requirement for private equity and ventures capital participants to invest in insurance firms through special-purpose vehicles. Though this will entice more finance to the industry. Raising the presence of these financiers with a moderately briefer investment horizon of 7-8 years could compel insurers to give precedence to profits over the gains of policyholders.
IRDAI has permitted insurers to nurture funds through subordinated debt and preference shares without prior sanction. The limit for these instruments has also been raised from 25 to 50 per cent of paid-up capital and premium. Since this is a capital-intensive business, it is good that additional ways of funds are being made accessible to the insurers. The watchdog recommended lesser solvency prerequisites for the unit-linked business (without guarantee) from 0.8 per cent to 0.6 per cent and PMJJBY from 0.1 per cent to 0.05per cent. However, reducing solvency ratios to liberate capital will leave insurers with lesser reserves against their potential claims and obligations. This will decrease the margin of safety available to policyholders.
Credibility and customer appeal…
Many of the new proposals of the IRDAI gratify the calls of present and prospective insurers and may enlarge the number of insurance firms in India. But they could operate against the welfare of policyholders. The need of the hour for IRDAI and insurers is to launch products having a lesser overhead distribution. Also, the availability of skilled manpower has to be increased, and training institutions should be fortified to produce industry-ready people in risk management, underwriting, claims, technology and sales.
Constructing credibility and customer appeal should be the focus to accomplish greater product penetration. – Shivanand Pandit
