Govt to rewrite life insurance norms

Along with retail and aviation, the insurance sector is set to see an overhaul following a finance ministry intervention. The sector has been characterised by dwindling sales in the past two years.

After a meeting with public and private sector life insurers, the finance ministry has set up eight committees headed by chief executives of insurance companies to examine issues plaguing the sector. The panels will look into a wide range of issues from distribution to product approval, taxation to bancassurance, among others.

Interestingly, none of the panels are headed by representatives from the sector regulator Irda (Insurance Regu-latory and Development Authority).

According to insurers, the Irda’s latest suggestions regarding changing norms for traditional products triggered the need to re-look at the issues as those norms, if implemented, would severely affect the sector's growth. In the regulator's draft norms on traditional products (the draft was revised four times), it is proposed the guaranteed surrender value of a traditional product needs to be increased and that traditional product holders would get the premium and bonus after seven years. The move would affect margins and agents' commission.

In terms of product guidelines, insurers have suggested the regulator approve or reject a product within a specific period. In addition, an aggressive strategy for approving pension products has also been suggested.

“We have proposed the regulator not take such a long time to approve products. It should either quickly approve a product or immediately reject it if there is a problem. Though the guidelines call for the filing and use of a product, they always go through the filing, approval and use stage. Therefore, we suggested certain categories of products that should be under 'file and use' and others under 'file, approve and use'," said the head of a life insurance company.
 

EXECUTIVE PANEL
Issue	Nodal Person
Agents & issues pertaining to distribution	Rahul Khosla, MD & CEO, Max Life Insurance
Bancassurance	Atanu Sen, MD & CEO, SBI Life Insurance
Product approval including designing of product	Amitabh Chaudhry, MD & CEO, HDFC Standard Life Insurance
Taxation	D K Mehrotra, Chairman, LIC of India
Rural & micro-insurance	P Nandagopal, MD & CEO, IndiaFirst Life Insurance
Investments	T R Ramachandran, MD & CEO, Aviva Life Insurance
Differential cost structure & pension	Manoj Kumar Jain, CEO and Director, Shri Ram Life Insurance
Technology	Jayant Dua, MD & CEO, Birla Sun Life Insurance
Source: Finance Ministry

The ministry decided a comprehensive note capturing issues, likely suggestions and who the subject-wise authority would be (the Irda or the tax department), must be prepared by each CEO.

The insurance industry has grappled with changes in regulations in the past two years. In September 2010, the Irda capped charges and commissions on unit-linked products (Ulips), as a result of which the average commission on Ulips as a percentage of premiums collected fell to four per cent in 2011-12 from nearly 10 per cent in 2009-10. The average commission on traditional plans as a percentage of the premium, around 8.5 per cent in 2009-10 for the private sector; increased to around 12.5 per cent in 2011-12. Private insurance companies changed their product mix in favour of traditional plans. During April-July this year, life insurance companies collected Rs 31,180 crore by writing new policies and traditional plans accounted for nearly 80 per cent.

The Irda is trying to introduce new norms and product design guidelines to improve transparency and curb mis-selling.