Mandatory listing of insurance firms on hold

Insurance companies will not be asked to compulsorily list themselves in the stock market, as the Insurance Regulatory Development Authority of India (Irdai) is having second thoughts about it after a nudge from the finance ministry.

"We had never insisted on it (listing). It is only a discussion paper and should be seen in that perspective," Irdai Chairman T S Vijayan told Business Standard.

He also said he had received comments on the paper from amny companies asking for a reconsideration of the proposal. "We are willing to wait", he added.

In August, Irdai surprised the 55 life and non-life insurance companies in India, when it issued a discussion paper on the need for them to get listed. The regulator gave the companies a short timeframe of less than a month to respond. "The hurry created an impression among firms that the final regulations would be in place soon", said the CEO of an insurance company.

Several companies have since approached the finance ministry, too, to discourage Irdai from making the plan operational. A highly placed government official said they have asked Irdai to go slow on the plan. In an unusual move, the government has since appointed former secretary (expenditure) in the finance ministry Sushma Nath as part-time member to Irdai. This is only the second such instance since 2003, when former revenue secretary C S Rao took over as chairman of Irdai, that a top finance ministry officer has moved into it.

The official said the appointment of Nath shows the government is keen to tighten its control over Irdai. Currently, it has a joint secretary level officer from the finance ministry as a part-time member.

Irdai has been asked to place the controversial listing plan for a detailed discussion at the next meeting of the insurance advisory committee. While in the normal course a discussion paper goes to the committee and is then made a regulation by Irdai, in this case, the process of consultation with industry is likely to begin afresh after the committee deliberates on it. In any case, since the advisory committee includes 25 members including life and general councils representing those insurance companies who have objected to the proposal, the chances of it moving further are dim. The committee was reconstituted in July for a wider representation of all shades of opinion in the sector.

The official said the ministry would suggest that instead of Irdai taking a position, insurance companies can decide on whether they will go public. "It should be their decision. Those who want can test the waters". A report in Business Standard shows for FY13, leaders, especially in life segment, have seen a healthy rise in profitability; but most of this has come from underwriting income and because of their exclusive tie-ups with banks.

In Budget 2016-17, Finance Minister Arun Jaitley had announced plans for listing on stock exchanges of non-life insurance companies owned by the government. The move was meant to ensure higher levels of transparency and accountability within these firms once they were subject to the discipline of the market. Irdai expanded the scope of that with its compulsory listing plan. Vijayan said Irdai does not distinguish between private and public sector entities. It implies just that as compulsory listing would impact both, a possible decision to rescind this would impact both, too.

The only insurance company to float a public issue is industry leader ICICI Prudential. Smaller insurance companies have argued that compulsory listing will lead to excessive consolidation within the sector. "This, in turn, will lead to greater control of insurance pricing by a few insurers. While greater rationality in the pricing of risks in the Indian market would be welcomed we do not believe a regulator will be thanked for the facilitation of the consolidation of pricing power," a note by these firms argues.

According to them, to comply with forcible listing, insurance companies with lesser amount of capital will find it difficult to obtain a proper price and struggle to improve their share price. "This will not only impact (their) ability to attract equity investors, but this weakness will also impact investor confidence in the company, leading to more expensive pricing of capital for the company, which will have to be passed on to policyholders", a sector specialist said.

That they have a point comes out clearly in a CII-EY paper on technological changes in the sector. "Insurance bundling on e-commerce platforms has enabled greater customisation in product and pricing, thereby, targeted marketing to customers", it says. This sort of positioning is not possible except for niche companies.

An Assocham report on the health insurance sector, for instance, says "health insurance ecosystem for India should have more private players. Only 60 million people are covered under private insurance schemes, which should go up substantially." The same paper notes that India stands 15th globally with respect to premium income.