Transition blues feared in risk sector

In the initial phase of the tariff-free regime, which will come into effect from January 1, 2007, growth can decline in the insurance sector, according to Tata-AIG General Insurance Company managing director Dalip Verma.

Citing the examples of Japan, Korea and Ireland, he said in the first three years markets in these countries witnessed 20 per cent decline. And after the the third year, growth picked up momentum.

Addressing a seminar "� 'Insurance for Infrastructure' "� organised by CII, Verma said detariffication would also expand the scope of distribution as pressure on the margins demands cost-effective and innovative methods to sell the products.

Besides, the traditional distribution channels like bancassurance, SMS, telephones, internet and worksite marketing would also emerge.

He felt that equity exposure could well pose a risk to insurance companies. Citing the Asian example, he said 18 Malaysian companies turned insolvent with just 30 per cent exposure during the market collapse.

Emphasising the need for a smooth transition of the industry towards the detariffed regime, Insurance Regulatory and Development Authority (Irda) chairman C S Rao said the regulator would step in at the first sign of a trouble during the transition stage to ensure corrective actions.

"We want to avoid turbulence. At this stage of the country's development, we cannot afford to have turbulence in the economic sphere," he said.

In the tariff-free regime, Rao said the healthcare segment would offer Many opportunities for the insurance industry. Similarly, with margins declining in engineering and corporate insurance sectors, the insurance companies were likely to expand their activities to personal insurance.

"This is a major shift which will happen following the detariffing. The real competition comes when a large number of players offer different policies for different sections," he said.

From the consumers' point of view, Rao said, the touchstone for selecting an insurer should be his ability to service. Apart from looking at the track record of the company, he said, consumers should look at the kind of reinsurance arrangement the company is providing.