IRDAI Chairman, Subhash Chandra Khuntia has announced three initiatives that the insurance regulator will be setting-up soon.They include (i) establishment of a risk-based capital system: a self-regulating mechanism where those who manage risk better will be allowed to operate with lower capital; (ii) risk-based supervision; and (iii) introduction of IFRS (International Financial Reporting Standard) 17.
"I am not in favour of unnecessary control, but would like to have broad regulations, and within that self-regulation on your part," he said while FINCON 2019 – 20th Annual Insurance Conference organised by FICCI,on Friday.
IFRS 17, he informed, has been postponed to 2022 globally. India has also postponed its introduction, but IRDAI needs the help and cooperation of insurers during the preparatory phase prior to its introduction.
Khuntia added that IRDAI is coming up with a regulatory sandbox. He called upon all companies to look into corporate governance standards and expressed confidence that the insurance industry will not run into the kind of problems faced by NBFCs.
Other areas where insurance companies need to pay attention include the protection of policy holders from unfair practices; development of new and innovative products catering to the requirement of the current crop of tech-savvy consumers; increasing penetration to cover the low-income population; and management and mitigation of risk, he said.
Highlighting the huge protection gap in the country, Dr Khuntia said, "It is important that you provide protection to customers." He further added that in a market with such huge opportunities, insurance companies will be comfortable even if their market share doesn't grow.
He said that currently, there are 24 life and 34 non-life insurance companies. Last year the overall rate of growth of premium was 13 per cent, higher than the economic growth of the country.
"India being a young population," this demographic characteristic is expected to continue for the next several years, offering insurers a very good atmosphere in which to operate. Of the life insurance companies, 21 are reporting operational profit compared to 25 in the non-life sector, Khuntia added.
He called upon the non-profitable companies to introspect. "Those struggling will have to change course and see that long-term sustainability is ensured," he said.
Insurance companies, like banks, will have to make provision full for their exposure to the cash-strapped IL&FS group and the two downgraded Reliance Capital subsidiaries,Reliance Home Finance and Reliance Commercial Finance he added.
"We have seen what kind of turmoil has happened in the NBFC sector but I am confident that insurance industry will not have that kind of a problem. In fact, insurers are meant to provide stability in times of economic turmoil," he said.
"I have asked insurers to be careful about related party transactions. It has to be at arm's length," he said. "We have seen what kind of turmoil has happened in the NBFC sector but I am confident that insurance industry will not have that kind of a problem. In fact, insurers are meant to provide stability in times of economic turmoil," he said.
Alpesh Shah, Managing Director, India, Boston Consulting Group, said during the last 18 years, there has been a changing consumer behaviour, across the population.
This was brought out sharply in a recent BCG survey where 77 per cent of consumers were willing to consider non-traditional insurance products covering dental, spectacles and jewellery.
Moreover, 88 per cent of them were willing to try out new media to purchase insurance. Insurers now have the option to offer personalized, byte sized, bundled products. Can we create such an offering?" he asked.