Insurance regulator to get independent advisor

Official to be from outside board, will coordinate between Irda and the government

The finance ministry is planning to appoint an independent advisor at the Insurance Regulatory and Development Authority (Irda), to increase coordination between the government and the regulator and to also keep a tab on the latter’s operations.

This comes after the ministry held a closed-door meeting with industry representatives last week. “Irda officials were not present at the meetings,” said chief executive of a life insurance company who attended the meeting.

According to sources, there is a growing notion within the ministry that regulatory decisions had played a key role in an unprecedented slide in premium collection in the current financial year. A finance ministry official said the proposed advisor might be appointed from the next financial year if the premium collection does not improve in the last quarter. “It is one of the possible ideas we are working on. He/she will directly report to the government and assist the regulator with policy decisions,” he added.

However, the advisor will remain outside the board. This is because the board already has a government nominee. Also, induction of an additional board member will necessitate an amendment to the Irda Act, 1999. “At least to start with, the advisor will be outside the board, because amending the Act is a cumbersome process,” the official said. “The main idea is to bridge the gap between the ministry and the regulator.”

Also, the government is in the process to set up advisory groups across segments to discuss issues impacting the sector and finding solutions for these problems. The groups will primarily look into the issues related to the growth, product development, insurance penetration and regulations. The move comes at a time when the life insurance industry is witnessing an unprecedented slide in premium collection.

The April-December period saw 24 life insurance players’ premiums collected by writing new polices shrink 17 per cent — to Rs 71,953.54 crore from Rs 86,698.84 crore reported in the year-ago period. Also, the number of policies issued was down 11 per cent in the same period.

Sources said the government was not comfortable with the insurance regulator’s “rigidity” on some key policy issues pertaining to pension plans and investment norms of life insurance companies. A source said the ministry sounded concerns, particularly on the non-availability of pension plans in the market — especially in this busy season. “They expected some more flexibility with the product features to suit different types of customers,” he added.

Another area of disagreement is investment norms of life insurers, particularly for Life Insurance Corporation (LIC), the country’s largest domestic institutional investor.

LIC has been lobbying with the government to relax the 10 per cent cap on equity investment in a particular company, which apparently is not finding favour with Irda. Similarly, the insurance behemoth wanted some leeway in debt investment norms, by allowing it to invest more outside AAA-rated papers.

As another insurance official who was present on the meeting said, Irda has been “sitting on these proposals for a long time, though ministry has no objections to these relaxation”.

Equity inflows have fallen as the sales mix has shifted in favour of traditional policies. With more money to be invested in debt, insurance companies are also tied by the regulation, which mandates 75 per cent of its debt investments should be in AAA-rated papers. Hence, “the government has prescribed a relaxation in this norm by allowing investments in lower rated papers”, according to a source.