Jandhyala Hari Narayan, 61, Chairman of the Insurance Regulatory & Development Authority (IRDA), is an IAS officer of the 1970 batch who was the chief secretary to the government of Andhra Pradesh before taking over at IRDA in June last year. He shares with us his views on some of the important issues facing the insurance sector. Excerpts:
You have taken charge at a time when the private sector insurance industry is facing one of its biggest tests since inception. What are the challenges that the current environment has thrown up for you?
I am sure this is just a passing phase and the insurance industry would bounce back to its potential growth levels, sooner than later.
The biggest trigger for many new entrants to enter into the life insurance business has been the high valuations commanded. Some looked at New Business Equivalent Premium (NBEP) or embedded value method. What’s the right way to value an insurance company?
One of the recent phenomena which is used internationally is the embedded value of the life companies. But embedded value considers the profit generated by the current volume of business. It does not take into account the future business prospects. In some markets, analysts embarked on Market Consistent Embedded Value (MCEV), but in the aftermath of the recent financial turmoil even this concept is questioned; and one concept which is having reasonable acceptance is the embedded value.
The committee constituted to draw the embedded value has submitted the report and in another one month the Institute of Actuaries of India should come out with clear guidelines for appointed actuaries to work out economic capital and embedded value.
Are you satisfied with the reduction in prices of some of the traditional term plans and also in the motor insurance policies? Or is there scope for more?
As far as traditional term plans are concerned, the premium is based on corporate experience and the pricing strategies are quite healthy and are based on sound actuarial principles. However, when we examine the motor industry, the trend which we are observing is very similar to what has happened in very many countries when such insurance products were de-tariffied. The experience in other countries was that, as a result of the de-tariffication, price competitiveness determined all sales; and prices were driven down to levels which were unsustainable. India is going through a similar experience too... We expect that this would be corrected in the medium term.
How concerned are you with the underwriting losses in the general insurance industry?
For a healthy growth of the industry, it is essential that companies generate operating surpluses in a given period of time; and not depend on the investment income perennially to generate profits. It is particularly germane at a time when the global economy is passing through tumultuous times. We have been stressing upon the importance of insurers generating underwriting profits.
What are the kind of disclosure norms that you are working on?
The disclosures in the Indian insurance industry are not as comprehensive as in several other countries even in the Asian region. The IRDA is working on mandating a wider range of disclosures. These norms would be based upon the patterns and frequency of disclosures as has been mandated in other jurisdictions.