1273495 Sonam Saini, F2, Q49-The Insurance Industry should be given time to adjust to Regulatory changes in a phased manner aligned with a Regulatory Impact Assessment. Comment.

Q1. <1273495-Sonam Saini-F2-Monika Dhillon –MBA F1>

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Q2.THE INSURANCE INDUSTRY SHOULD BE GIVEN TIME TO ADJUST TO REGULATORY CHANGES IN A PHASED MANNER ALIGNED WITH A  REGULATORY IMPACT ASSESSMENT. COMMENT

INTRODUCTION-

There is never a dull moment in India, certainly not in the life insurance sector. After a decade of dramatic growth, the life insurance industry in India is currently assessing the impact of a number of recent regulatory changes aimed at enhancing customer protection. The insurance Regulatory And Development Authority (IRDA) has opted to impose onerous restrictions on the design and pricing of Unit-linked insurance products (ULIPs) in order to achieve the desired objective. Recently, IRDA has also introduced the guidelines imposing similar restrictions on Universal life products (referred to as variable insurance products or VIPs).

DISCUSSION-

Quick and frequent changes in regulations disrupt the business models of the insurers. The industry should be given time to adjust to regulatory changes in a phased manner aligned with a regulatory impact assessment. Regulations need to drive transparency and simplification of products and services. Insurance being a long-term product, customer servicing also becomes important as the individual claiming the benefits may be different from the individual buying the product.

The regulator also needs to drive financial education and awareness about insurance products to create a customer pull. Currently a majority of sales is accounted for by the tax incentives rather than any demand for insurance products. Increasing awareness and understanding the need and utility of insurance will drive growth in the industry in the long run.

For the first time, since the industry was liberalized and opened to private and foreign insurers, the life insurance segment witnessed a year-on-year decline (around 10%) in the first year premium collected. The non-life segment is still struggling with underwriting losses while health insurance is facing high claims ratio and inefficiencies in policy administration.

The non-life premium underwritten grew by 23% in FY12, reaching Rs530 billion from Rs430 billion in FY11, but the segment is saddled with considerable underwriting losses and pricing issues in addition to high claims ratio exerting increasing pressure on profitability. 

In case of group health cover, claims ratio decreased in FY11 mainly on account of revision of prices in the overall industry (16%–20%), reducing losses to around 100% from 120%. In case of individual cover, the loss ratio was around 80% in FY11 due to some revision in prices. For government schemes, the loss ratio varied from state to state and was in the range of 60% to 120%.

CONCLUSION-

So, here I can conclude that, the Insurance Industry should be given time to adjust to regulatory changes in a phased manner aligned with a regulatory impact assessment.

The stakeholders should eventually work toward maintaining a favourable environment for stable growth, increasing the penetration of insurance to rural and underpenetrated areas and increasing the contribution to the economy.