Irda to inspect life insurers' books

The Insurance Regulatory and Development Authority (Irda) will soon start inspecting life insurers’ records with regards to group policy operations, since the regulator feels that information given by the insurers is in “contradiction” with what is conveyed to the market.

Speaking to Business Standard, Irda Member R Kannan said that the regulator is “...worried some of the insurers are absolutely out of alignment and are looking for topline growth. They are anxious to increase their market share and, in this process, are ignoring the risk parameters.”

Group insurance business is an attractive business for an insurance company as it involves minimal operational expenses, while helping insurers to increase their overall market share. It covers a group of people in an organisation with the employer taking care of the premium payments. 

The insurance companies’ focus on this segment has led to a growth of 41 per cent in group insurance premium collections between April 2008 and January 2009. As per Irda’s data, premium collection by life insurers in this segment increased to Rs 11,988.03 crore in the same period as compared with Rs 8,444.40 crore during the corresponding year-ago period.

Kannan said that some of the rates quoted by insurers to corporate clients are not even sufficient to cover the stamp duty payable on the policies. Therefore, he added, Irda would look closely at the pricing of group insurance and guaranteed insurance policies as the premiums of several such policies is too low.

“During the inspections, we will study carefully the adequacy of the policy charges and the premiums levied by the life insurers for policies with guaranteed returns. The pricing pattern is a serious issue and any aberrations would lead to a serious problem in claim settlements. It will also affect other businesses, including investment,” he said.

Irda also wants to formalise the group insurance administration in the industry and regulate certain sales practices relating to group products.

“Since the regulator has limited resources, it would start inspecting companies at random,” Kannan revealed. At the beginning of last year, the regulator had issued a circular urging companies to submit a report on a quarterly basis. It also urged them to follow the established norms and guidelines.

“But the quarterly statements received by us do not match with what is being said in the market. There is a clear contradiction,” Kannan said.

As an example, he cited how companies pointed out in their own statements that the claim settlement percentage has come down. 

“But it is still in the range of 15-20 per cent over the last three years. This means that the risk is still there,” Kannan said, adding that if companies were found guilty after these inspections of their records, action would be taken and the same would be made known to the public.