Chairman J Hari Narayan stresses on the need for a mechanism to provide clarity on regulatory frame work to ensure investor confidence in the economy

After winning a long drawn battle with Sebi over regulation of unit-linked insurance plans (Ulips), insurance regulator J Hari Narayan has favoured a joint regulatory mechanism to settle inter-regulatory turf wars on hybrid financial instruments. In an interview with ET's Hema Ramakrishnan, he made it clear that insurance companies need to rationalise their cost structure, but was against giving any flexibility in the new norms proposed for Ulips. He also wants more reforms in health insurance but is against cross subsidisation in this segment. Excerpts:

The recent instance of state-owned health insurers de-listing hospitals offering cashless mediclaim has raised concerns over the lack of regulatory intervention. Can the Insurance Regulatory Development Authority (Irda) be more proactive in its intervention?

The recent instances are not inconsistent with the terms of policies sold. The insurer hospital tie-up is governed by contractual obligations, which take into account premium paying capacity of policyholders and reasonableness of the charges being levied by hospitals. It needs to be emphasised that ultimately it is the policy premiums which meet the costs of hospitalisation. It is not advisable to cross subsidise one segment of policyholders by other segments. Insurers and hospitals will consider all these issues and arrive at an equitable charging structure, taking into account the differing needs of various segments of the population. We must be vigilant to ensure that the health care industry in India does not evolve into a high-cost structure.

What, in your view, will be the longterm solution to make health insurance affordable?

RBI wants the government to allow the Securities and Insurance Laws (amendment and validation) Ordinance to lapse? Will a joint mechanism, proposed in the Ordinance, hurt regulatory autonomy?

I am confident that the government will address the concerns of RBI in an appropriate manner. However, there is a need for a mechanism for providing necessary clarity on regulatory framework to ensure investor confidence in the Indian economy.

Do you think the HLCC-FM has failed to deliver, going by Irda's experience on the tussle with Sebi over Ulips?

High Level Co-ordination Committee(HLCC) has been serving purposes for which it is set up in an admirable fashion and will further get strengthened as the sector reforms need intensive interaction between regulators.

What are Irda's views on the proposed structure of the Financial Stability and Development Council (FSDC) ? Should the FSDC restrict itself to financial stability only?

The matter is engaging the attention of the Irda and we will firm up our views shortly. The question that Irda is looking at is whether there is a need for such a forum.

Although concerns were raised on the market conduct of insurers selling Ulips even in the past, regulations on Ulips were tightened only when the turf war with Sebi reached a crescendo. Why?

Right from the inception, Irda has been taking measures to ensure that the industry adopts policyholder-friendly approaches. Ulips were largely introduced in 2005. Since then, based on experience, several steps were taken to strengthen the policyholder protection features of the product. The introduction of a lock-in period, capping of charges and disclosure of charges are some measures undertaken much before the dispute. Regulation involves constant vigilance and the latest steps in the sequence of reform are the Ulip guidelines issued recently. Irda will plug loopholes as and when they are detected.

Insurers want the option of selling nonguaranteed pension plans as well. Is this justified? Do you propose to review the norms that will make it mandatory for insurers to give a guaranteed return on unit- linked pension plans?

The world over, pension products carry several types of guarantees. It is the regulator's duty to ensure that retirement savings are not wiped out by unpredictable movements in the stock market. Irda will ensure that guarantees are reasonable and sustainable for the industry while addressing policyholder's concerns.

Insurers also want more time to comply with the norms. Are you willing to relax the September 1 deadline?

The deadline was fixed keeping in view the time required for designing the product, modifying IT systems and gearing up marketing channels. Hence, we see no need to revise the deadline. Extending the deadline any further will deny the benefits of new guidelines to a large number of prospective policyholders.

What is your assessment on the health of the insurance industry?

The growth of life insurance premium during 2009-10 was around 18% and that of general insurance was 10.6%, which is reasonably a better performance as compared with other segments of financial sector. During the past nine years, life insurance grew at a compounded annual growth rate of 23% and the general insurance grew at the rate of 16.5%. Further, insurance penetration has gone up to 4.01% in 2009 from 1.8% in 2000 and insurance density touched $42 in 2009 from $7.6 in 2000. This is a reflection of the robust growth in the industry. However, the life insurance industry has shown a tendency to adopt a high-cost structure. This needs to be rationalised in the best interests of the industry. The non-life industry will need to evolve strategies to develop appropriate products for a wider segment of the population.

Is the expense over-run of insurers and huge lapses on surrender a major concern for Irda? How do you propose to tackle the problem?

Expenses of all the insurers are being monitored against the statutory ceilings on a regular basis and the defaulters will be dealt in an appropriate fashion.

Source: The Economic Times