Established in April 2000, the Insurance Regulatory and Development Authority (Irda) monitors the insurance sector in India. It was set up with the mandate to protect the interests of policyholders across life and non-life segments and promote market efficiency. We talked to Irda chairman J. Hari Narayan on a range of issues, including the proposal to phase out commissions, low penetration of insurance in India and the focus areas in the coming months.
Till a few years ago, the insurance regulator was seen by most as representing the industry's interests, but in the past few months it has taken several steps to increase transparency and further the policyholders' cause. Is there a conscious shift in the way Irda is dealing with issues?
J. Hari Narayan
Irda was established specifically to protect the interests of policyholders and to regulate, promote and ensure orderly growth of the industry. Initially, greater attention was paid to the evolution of appropriate regulation processes to enable the emergence of a sound industry, but the primary focus has always been, and will continue to remain, the policyholders' interests. Irda has been guided by the policy laid down by the Parliament and that is its mandate.
The Swarup Committee's recommendation to phase out agent commissions has faced opposition from the industry. Do you think commissions and transparency in selling can go hand in hand? After all, commission is an incentive for an agent to mis-sell.
Mis-selling, whether it is a life insurance policy or any other product, has largely to do with the awareness of the consumer while purchasing a given product and the quality of communication between the manufacturer of the product and its eventual buyer. It is this aspect of communication that needs to be addressed vigorously to ensure that customers purchase a product that truly meets their requirements.
After capping Ulip (unit-linked insurance plans) costs, will you consider doing the same for charges on traditional life insurance policies?
No such move to cap the charges on traditional policies is being contemplated at present. Having said that, the regulator's job is to ensure that the policyholders' interests are protected in the long run. To this extent, several decisions will have to be taken from time to time.
Given that insurance requires far greater financial resources with respect to solvency compared with mutual funds, do you think investing in insurance products will always be costlier?
If you look at the overall benefits of Ulips, including the risk cover that is inherent in all such policies, and if the policy is held for the full term, it will be evident that Ulips are the most efficient way of investing for an individual.
While the average investor seems to have understood the need for life insurance to an extent, he does not realise the importance of protecting his assets. What is the reason for this?
Indians have a culture of saving and about 33 per cent of the GDP consists of household savings. But the bulk of these are in the form of gold and property. The reason for such marked preference in the form of savings has a lot to do with the cultural history of the people. Given the developments in the advanced markets in recent years it cannot be said that there is no element of wisdom in such a conservative approach.
Ambiguities in policy wording are often at the root of disputes and grievances related to health insurance. How can this be dealt with?
Historically, insurance documents have been steeped in jargon, which is sometimes beyond the comprehensive ability of the average policyholder. This leads to a situation where there are policy-related controversies. To overcome these complications, we have been advocating uniform, easy-to-understand policy clauses to be made a part of the contractual obligations. It may not be long before such measures are adopted and controversies relating to policy wordings take a back seat.
One of the steps being talked about to facilitate functioning is digitisation of records, which may obviate the need for individuals to keep paper records. Similarly, Irda has taken several measures in the past year, such as the setting up of the Insurance Information Bureau, to disseminate information on the industry. When can we expect these facilities to be available?
Active work is in progress to digitise the insurance records and disseminate information on the subject to raise consumers' awareness. We are hoping to implement the benefits of all the hard work in both these areas in the very near future.
As a regulator, what are the most important issues that you would like to address over the next couple of months?
We have been taking steps to increase the awareness of general masses on insurance so that they are enabled to take informed decisions. This can help achieve a drastic reduction in the number of insurance-related controversies. It is also our endeavour to ensure that the delay associated with disputed claims is rapidly reduced. Besides, it is essential that insurers disclose as much information as is required to enable smooth progress for the industry. These are some of the areas that form the superviser's top priorities.
