The Hindu Business Line : `Need to detariff insurance industry, raise FDI cap'

Having successfully completed one year as the Chairman of the Insurance Regulatory and Development Authority (IRDA), Mr C. S. Rao is now comfortable with the task assigned to him. During this period, he has evolved a sound vision on various issues such as the role of intermediaries, customer protection, solvency mechanisms for insurance players, role of third party administrators for the growth of health insurance and need for detariffing the industry. He is also ready with solutions for problems in motor insurance, suggestions for strengthening the legal framework for expeditious settlement of claims, concern over the falling interest rates and also means to overcome problems of falling investment incomes, and favourable views on need for raising the foreign investment caps in insurance sector.

In a freewheeling interview with Business Line, Mr Rao spoke on a variety of issues relating to the insurance sector.

Excerpts from the interview:

How do you look at the changes that are currently taking place in the Indian insurance arena?

Insurance industry is now coming into its own in this country. So far, insurance was confined to the public sector. The kind of products that were available was very limited in the absence of competition, especially in the life sector.

As a result, you will find that a large number of products that have come from Life Insurance Corporation in the last 50 years were either based on their own perception of what is required at different points of times or in tune with what the government wanted them to be at different points of times. As a result of the competition now, with the presence of the private sector, you find a lot of innovation in the products itself. You find a large number of products that suit the requirements of different sections of the population.

The second thing is that we now have a large number of intermediaries who are acting as the bridge between the insured and the insurer.

I think we have substantial improvement in the field of insurance in the country by wider choice with large number of insurance companies, wider variety of products and a large number of people who can advise the insured on the appropriate choice.

Do you think that the measures taken for customer protection have yielded the required results?

I think customer protection is a continuous process. At different points of time, different customers would have had different grievances that need to be attended to. So, one has to be live to the situation and see to what extent their grievances can be redressed.

I think the insurance companies themselves are alive to what is happening and have put in place within their organisations a mechanism by which they address the problems of the customers sympathetically and expeditiously. There are some problems that cannot be solved or are not being solved. In which case, there are various forums such as the consumer courts and civil courts. The insured can also approach the insurance regulator.

How comfortable are you with the solvency margins that were prescribed for the insurance players?

I think we have excellent solvency regulations in place. In fact, the Act itself says that there should be 100 per cent solvency margin. But we have gone a step further and said 150 per cent.

The idea is that we should have very strong insurance companies and these strong insurance companies alone are the real protection to the consumers. Unless an insurance company is solvent, it will not be able to take care of the requirements of the policyholders. So, we lay great stress on solvency and the manner in which the investments are made. We would like to see that these high solvency margins remain in place for quite sometime till the entire insurance sector stabilises.

What could be the reasons for the disappointing condition of health insurance in the country?

I think health insurance is an area that is riddled with problems. There is no denying of that. The basic problem is that we do not have individual health profiles. In the West, from the time the child is born records are maintained. This is not there in our country.

In the absence of such record maintenance, the insurance companies find it difficult to assess the eligibility of an individual for health insurance. The second thing is that they (the health insurance companies) also have difficulty in fixing an appropriate premium for various kinds of diseases in the absence of information. So, lack of information is one of the major problems we have today, which is preventing the spread of health insurance. We are trying to address that particular problem. We are now trying to build up data by compiling whatever data is available at different places. We have constituted a Working Group, which has already met twice and created one more sub-group to look at only the data currently available and analyse them.

There is a general perception that the TPAs (third party administrators) system in our country has not lived up to expectations?

There is no doubt that the TPAs system that we have today had teething problems. Suddenly, these people found that they have to handle a large number of cases. Even those who had some experience in the public or private sector, they didn't have the numbers with them, which started suddenly swelling.

They found it extremely difficult to cope with the numbers. Now they are coping with it. The first round is already over. We have identified some interim difficulties and found some solutions. I suppose now the TPAs system will take off. In the long run, if we are going to have a large expansion of health insurance, we have to necessarily have TPAs system. I don't think we can live without them at a later stage.

Do you favour detariffing the insurance industry?

Detariffing is inevitable in a highly competitive environment. We have to go in for detariffing so that the customer gets the maximum advantage. But detariffing will have its initial problems.

After all, in a transition from tariff to detariff, there may be few instances where the companies may come under severe strain in order to compete. They may be going in for underwriting of some risks, which they cannot bear at a later stage. We would like to see that no company suffers as a result of this transition from tariff to detariff. We would like the transition to be smooth. We don't want to rush into this detariffing. We will prepare a plan of action and discuss with all the industry players and perhaps move slowly towards detariffing.

What do you think are the key reasons for the problems of motor insurance and how do you propose to address them?

Motor insurance has some problems, problems with regard to the rate itself and there is a problem with regard to the manner in which the claims are handled. The problem today is that they have a large number of claims, which are spread over a number of Courts that are not getting disposed off. As a result, you will find the insurance companies ending up payment of huge amounts by way of interest.

Unless we are able to cut down these kinds of delays that are taking place in this segment of claims, we will not be able to really find a solution to this problem. We have to find a solution to this motor insurance.

We have to see whether we can move towards a direction where we cap our claims as is the case in various other kinds of accidents like train accident and flight accident. If the individual wants to cover himself for a higher amount, he can always cover.

Is the existing legal framework conducive to expeditious settlement of claims?

The Law Commission is looking into this matter. Maybe it will come out with the kind of streamlining that is required to provide for an expeditious settlement of the claims. We can have some courts that are exclusively earmarked as fast-track movement for high values. We can also simplify the process to reduce the time for settlement of claims.

Falling interest rates regime seems to have created problems for the insurance companies with their investment incomes coming down significantly?

Yes, investment incomes are going to come down because of the falling interest rates. This only means that we should do the underwriting in such a way that the underwriting commission takes care of your requirements. Underwriting commission that you get should be able to cover your costs. So, I think the accent to going to be on arriving at the most appropriate premium. That can perhaps be done in a detariffed situation in a much better way.

Do you favour raising the cap of foreign investment in the insurance sector?

After considerable debate, the FDI cap has been fixed at 26 per cent today. But in all other sectors, the FDI cap is going up. May be there is justification to have a re-look at the FDI cap in insurance sector also. It is basically a policy issue and I think the Government will definitely look into it because they are now for relaxing the FDI caps in many sectors. And I think there is no reason why insurance should be an exception in this.

What is your outlook for insurance industry?

Indian insurance industry is having a bright future as far as I can see. Our economy is picking up. The GDP is growing. The per capita incomes are growing. The percentage of people below the poverty line is coming down. So, you will find more and more people looking for a proper insurance cover, whether it is an individual or an industry or a small enterprise.

There are also other risks, which are coming up and the people are aware of it. These are risks that did not exist sometime ego. There are new threats that require the business and enterprise to have a proper cover.

We are poised for a good growth in insurance sector. The annual average growth in the Indian insurance industry after the opening up of the sector is in range of around 25 per cent. I think the industry would grow at 20-25 per cent per annum, which is considered a very good in insurance. The private sector is slowly getting into the act. In the case of life insurance, they have around 10 per cent of the market and in general insurance around 14-15 per cent. I think they have definitely made their presence felt. And in the process, they have also enlarged the scope for insurance. It is not merely that they are getting into some area, which was already exploited by the public sector. The cake itself is becoming larger. That itself is a good sign.

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