The Government’s decision to allow Life Insurance Corporation (LIC) to invest up to 30 per cent of its funds in listed as well as non-listed companies is imprudent, said J. Hari Narayan, Chairman of Insurance Regulatory and Development Authority.
He was addressing the media on the sidelines of the Insurance Brokers Association of India’s summit in Mumbai.
The Insurance Act of 1999 stipulates that an insurance company can invest only 10 per cent of the funds or have 10 per cent of a company’s stake, whichever is lower, in an entity. However, according to the Finance Ministry directives, the LIC Act, 1959 supersedes the Insurance Act.
The move will result in a separate investment cap for state-run LIC and private insurers.
Healthy product growth
While acknowledging that the life insurance industry has witnessed a slowdown in growth this year, Hari Narayan said that factors such as the fall in sales of single-premium products and the growth of non single-premium products are a healthy sign for the sustained growth of the insurance industry.
Hari Narayan also said that though there has been a gradual fall in the number of redemptions — that is, withdrawal from a policy before the end of the tenure — the value of redemptions exceeding the first year premium collection of insurers is a worrying factor.
Narayan feels that this is a reflection of poorly designed products which were sold in the buoyant 2008-10 period.
On the issue of the regulator’s reservation on the highest NAV (net asset value) products, which, according to the insurance authority, is a misleading product, Narayan said that the matter has been taken up with the Insurance Advisory Committee and its recommendations will be tabled during IRDA’s next board meeting.
The regulator will be coming out with detailed guidelines on traditional insurance products, bancassurance (tie up of banks as distributors of insurance products) by the end of this month.
Also, it will be coming out with revised investment guidelines for insurers by the end of this month.