The insurance regulator needs to step up to the plate to craft a modern, transparent and progressive industry framework and a global (re)insurance platform, say two industry veterans.
The essential leitmotif must be to prepare and promote the ease of doing insurance business in India, and the regulatory agenda needs to be development-oriented led by prudential regulations with conduct regulations pitching in as bulwarks.
Mr H Ansari, a former Member (Non-life) of the IRDAI, and Mr Arun Agarwal, an independent director of Kotak Mahindra General Insurance, made these comments in a research paper titled “A Transformative Agenda For The Indian Insurance Industry and its Policy Framework”, which they released yesterday. The research paper focuses on the key areas that need to be addressed from a policy, regulatory and market development perspective.
“We need the insurance framework in India to be made more robust with global best practices serving as benchmarks, with due localisation,” the authors said.
The regulator, IRDAI, must create an inclusive insurance and a digital economy, and must become an enabler – through the regulatory set up and forward-looking regulations -- for the Indian insurance market to tap technology-led disruptive changes.
“It is time to transform – in thoughts and actions,” said the authors, adding that there is a need for coalition building, specialised knowledge, less hierarchy, more collaboration, and flatter professional structures.
The regulator also has to be the change agent for full vertical alignment, from the fundamental philosophy of insurance to modern regulatory practices, and finally with the insurance industry delivering efficient services to the Indian insurance market.
The changes cannot be held up for long as India’s share of the global economy is set to increase. India also needs to prepare to become a regional centre of excellence for (re)insurance for the markets across Asia and Africa, as the balance of economic power is moving from West to East
Outlining several challenges plaguing the industry, the authors say that the reasons that the insurance sector in India is under-penetrated and inadequately penetrated are: lack of awareness, low level of financial inclusion, and lack of trust in the system.
In addition, the support system is over-regulated and cost of compliance is high. Regulations are about input policing rather than being outcome-based.
The essential and pre-requisite “Ease of Doing Business” framework has not been installed with vigour. The approach to public accountability is hesitant and tentative, and the level playing field imperative does not prevent a government entity from getting preferential treatment.
“The Indian insurance industry too has contributed to the current intrusive 'rule based' regulatory mechanisms. Life business has not been very successful in creating value, delivering returns below the cost of capital for years. The non-life insurance industry has the highest combined ratio across developed and emerging countries, almost for the last 15 years. What one observes is that ‘poor market conduct’ leads to even more intrusive regulations – with the one feeding the other in a circular movement,” the paper said.
The Indian insurance market though feels redeemed with the top lines and the gross premium increases, the growing number of policies across life/non-life sectors, and the investment-led rather than underwriting-led profits.
“The lack of profitability and the underwriting disciplines means that the risk mitigation is not attended to, the right talent is not attracted and worse there is no research spends into lowering the risk thresholds – both for the traditional and emerging risks. The short-term approach taken by the market is, however, not getting corrected by the IRDAI in spite of occasional attempts,” the authors said.
At the same time, capital accumulation is not enough to fund more growth. Paradoxically, the below par performance of the insurance firms means that fresh capital is not easy to get – either internal accruals, public listing or external borrowing or equity - all of which demand greater control and improved performance. This becomes a vicious cycle. India continues to be poorly and inadequately penetrated.
Mr Ansari has been a Chair Professor (General Insurance) at National Insurance Academy, Pune, and has also worked as an Additional Director at Centre for Insurance Studies, National Law University at Jodhpur. He has over four decades of insurance industry experience. He started as a Direct Recruit Officer with LIC and subsequently held various positions as Director and General Manager of Oriental Insurance, and as Independent Director of Chola MS General Insurance and L&T General Insurance. He is currently on the board of Reliance General Insurance Company.
Mr Agarwal, a 1977 Batch Direct Recruit officer from GIC, spent more than two decades at GIC/Oriental Insurance/National Insurance Academy. He then worked for AIG in India and was among the founders of Tata AIG General Insurance. Later, he was involved with the founding of Chola MS General Insurance and was its first Chief Executive and Managing Director. He has represented Lloyd’s as their General Representative in India.