Document Detail

Title: Second Annual State of the Insurance Market Conference
Reference No.: New Delhi
Date: 07/10/2005
Building a Vibrant Insurance Market in India
Building a Vibrant Insurance Market in India1
C.S. Rao2
The annual conference is an occasion for a review of the developments that have taken place in the insurance scene over a year. It also offers an opportunity to take stock of the strategies that have been adopted by the insurers to deepen the market and assess their impact and determine whether those are the appropriate strategies for the conditions prevailing in the country. This is an occasion for introspection and I believe that we shall be spending these two days to track developments and determine their implications for the future growth of the sector.
As a result of the concerted efforts of the public sector insurers and those in the private sector, the insurance market has been expanding over the last five years. The first year premium underwritten by life insurers in 2004-05 has registered a healthy growth of 35% which is second only to 104% growth recorded in 2001-2002. This increase comes on a 10% growth registered in 2003-2004. The non life industry recorded a growth of 12% which is at the same level as that registered in 2003-2004.  The main driver of growth in the life segment is the Unit Linked products; In the case of non-life insurance, the motor and health insurance portfolios have been expanding rapidly. Inspite of an impressive growth in the life premium, there has been a decline of 8% in the number of policies issued. The decline is primarily attributable to the drop in the number of policies issued by the LIC though it registered a 22% increase in premium. The reasons for this decline in policies require to be examined in detail. In the case of general insurance, out of a total increase in premium of Rs.1900 crores in 2004-05 over last year, motor and health account for Rs.1500 crores. In view of the large increases in these portfolios a proper management of the portfolios is critical to sustain the level of growth.
The expanding market demands a large agency force. The insurers have, therefore, been recruiting agency force on a continuous basis. As the end of March 2005, there are 20 lakh individual agents and 4711 Corporate Agents. A significant development noticed last year is the arrangements entered into between the insurers and Commercial Banks for marketing the contracts either as Corporate Agents or on referral basis providing data base to the insurers.          
The demand for tied agency force has lead to a situation where the resources of the Institutes providing training have been stretched and a number of irregularities in imparting training have come to the notice of the Authority. The inspections by the Authority of these institutes have revealed a number of areas where improvements were called for. It was noticed that some of the Institutes did not have the infrastructure to conduct classes and the faculty was drawn on an adhoc basis and the courses conducted in a short span as a result of which many of the agents did not receive adequate training. It was also noticed that the licensed training institutes allowed franchisees to conduct training on their behalf which was irregular. The insurers, in their anxiety to recruit agents, did not pay any attention to the type of training imparted. The Authority had, during 2004, streamlined the system of training and impressed on the insurers the need for greater attention being paid to the training of their agency force. The revised guidelines were issued after extensive consultations with the stakeholders and it is hoped that this effort would result in improving the quality of the agency force. The Authority is keen that the agency force should be properly equipped as the insurance products are no longer simple and the agent should be able to assess the requirements and advise on the appropriate policy.
The Authority has also been in close contact with the Insurance Institute of India for streamlining the examination system as instances have been noticed where the sanctity of the examination process was sought to be compromised by a few interested parties. The CEOs of the insurance companies were requested to advise their marketing staff to exercise vigilance and ensure that the examination process was in no way compromised.
The institution of corporate agents was a new experiment started by the Authority to facilitate sale of insurance policies through existing institutions which are in contact with a large section of the population in the discharge of their normal activities. The Authority has come across cases where corporate agents have resorted to use of introducers or finders or sub agents who, in fact, sold the contracts and the corporate agent passed on varying levels of commission to them. Since insurance contracts are technical in nature, the Regulations issued by the Authority stipulated that the canvassing should be done only by specified persons “who are qualified to be Agents”. With a view to streamlining the system of licensing of corporate agents, the Authority issued a set of instructions to be followed by the insurers while issuing licenses to corporate agents. An attempt was also made to remove some of the aberrations that have crept into the sale of group insurance policies.
The Authority believes that unless appropriate standards are set and followed by the insurers and the intermediaries, there is distinct possibility of the insurance market getting distorted which would affect the interests of the insured as well as the insurer. We would like to see a healthy growth of the market even if it means moderate growth of the market. We do not want the long term interests of the market to be sacrificed at the altar of immediate gains in premium.
Absence of data has been a hurdle in general insurance for taking any major initiatives. We have been working on collection of data in both motor and health portfolios for the last two years. The efforts made last year in identifying the sources of data and the manner in which it is stored and how it could be retrieved has met with some success. A pilot study undertaken from a few Divisional Offices in and around Mumbai has thrown up some interesting possibilities. It is noticed that data is available in electronic form in various stand alone computers and it could be accessed by writing a simple programme. But the data that is available shows that in terms of classification there are inadequacies. These can be addressed and future records could be built up by removing the existing imperfections. It is also possible to clean up the data by going to original records in select cases and build up a representative sample. With a little more effort it should be possible to build up the whole record by verifying basic records at least in respect of third party liabilities. It is hoped that in a couple of months we should have credible data on motor insurance for at least two years. A similar exercise was also conducted on health insurance data by collecting records from the TPAs. The information in respect of 2 million policies has been collected and it is being checked for internal consistency. The experiments at data collection in both motor and health have helped us in understanding the manner in which data is managed at the operational level and our interaction with the public sector insurers indicates that it should be possible to improve the quality of data with a little effort on the part of the insurers.
Inspite of the constraints inherent in a tariff regime, we have witnessed a significant growth in the number of applicants for grant of broker’s license. We have sought to enlarge the opportunities for the brokers to operate in the market by increasing the threshold limit at which the discount in premium is allowed for contracts concluded directly with the insurers with out intermediation by brokers. We believe that this would facilitate the entry of brokers in general insurance market so that they gain enough experience to be of assistance to the insured when complete de-tariffing takes place. The broking community should realize that they have a major role to play in enlarging the market through innovative packaging and by creating new products. In the areas where they are already operating they should ask themselves the question whether they have been able to provide value added service to their clients.
The CEOs of general insurance companies have repeatedly suggested that a complete detariffing of the market is an essential pre-requisite for the healthy growth of the market. The Authority has always stressed the need for an orderly transition from the present tariff market to free market. It has to be recognized that absence of data and lack of experience in underwriting could upset the market with adverse consequences for the insurer as well as the insured. The Authority while agreeing with the suggestion of the insurers for removing the tariff has given a road map to be followed to make the transition as smooth as possible. We have sought the suggestions of the CEOs and we hope to receive them during the course of this month. Detariffing is an exercise that requires close interaction between the insurers and the Regulatory body and we hope, together, we could move to a detariffed regime without upsetting the market.
Development of any regulated sector will depend on how sound is the regulatory regime. The authority, since its inception, has worked closely with the stakeholders in promoting healthy growth of the insurance sector. Since regulation of insurance industry is a relatively new activity it is necessary that the Authority draws upon international experience so that the industry is regulated according to standards accepted the world over. In this major task we are assisted by the US government which has provided financial assistance through US Aid under the FIRE Project. We are grateful to the US government for its continued support to the Authority in sharpening its supervisory skills. We would like to place on record the assistance provided by the   economic cooperation wing of the US Embassy at Delhi. Mr. Ashok Jha has been actively involved in our various activities and I would like to thank him for his interest in the project.
The Bearing Point who are appointed as consultants under the US Aid programme has been providing inputs in shaping the regulatory framework. The Authority has benefited from the rich experience of the Consultants engaged by Bearing Point in insurance supervision coupled with their insights into the applicability of international practices to the Indian conditions. Ed Balbin and Richard Webb have been of great assistance to the Authority in dealing with issues concerning regulation and supervision. We are grateful for their support. I would like to thank Mr. Ken Cahill, Managing Director of the Bearing Point for his contribution to the deliberations in the working group on Health Insurance and for facilitating the internship of our officers with Regulations in the US. We appreciate and value his support and the assistance extended by the Bearing Point under his supervision in shaping our supervisory role.
I have briefly outlined the way the market moved in the last one year and what efforts have been made by the insurers and the Regulators with a view to deepen and widen the market and establish it on a sound and sustainable growth path. In this seminar we will have an opportunity to deliberate on the state of the market and draw lessons from the past. I am sure that those lessons would be valuable and will undoubtedly guide us in taking appropriate steps to establish a sound insurance market.

 1 Keynote address delivered at the Second Annual State of the Insurance Market Conference at Taj Mahal Hotel, New Delhi on 6-7 October, 2005 organised by IRDA, USAID & BearingPoint
 2 Chairman, Insurance Regulatory and Development Authority     go top
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