Thanks to the Link: http://www.indianexpress.com/news/irda-questions-practices;-dont-micro-manage-say-insurers/919075/
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The life insurance industry and the Insurance Regulatory and Development Authority (IRDA) are at loggerheads over a recent letter written by the regulator raising questions on the product design and certain practices of insurers.
Life insurers, who see this as an exercise by the regulator to justify the huge delay in product approvals over the last two years, have formed a core group to help build consensus among all players and present a single paper to the regulator, contesting the issues raised by the regulator.
The key differences are over the IRDA suggestions including making premium paying term equal to the policy term, questioning the ‘heavy reliance on re-insurers for each and every product’ and the risk it carries should a reinsurer default, creating barriers for insurers in launching too many funds under one product, and over the suggestion to increase equity exposure for the guaranteed NAV products.
In a strongly worded letter, the regulator said, “Lately more complex products are being designed and filed for F&U (file and use) clearance with the IRDA... several of the products are not in alignment with the best practices and, frequently lack clarity. The efficiency of the product clearance has been constrained by such features.” At a meeting on Tuesday, the Life Insurance Council — the forum of insurers — decided to jointly draft a response to the regulator’s suggestions. Many said discouraging single and limited premium terms would impact their cash flow management for the companies.
They feel that flexibility of paying for a short term and getting cover for much longer term provides flexibility to the customers and that should continue. “There are many customers who want to pay for a shorter term due to high incomes at specific periods, for example actors. Why should we kill this flexibility?” a senior official of a life insurance company told The Indian Express.
The regulator has also questioned life insurers’ tendency to rely too much on re-insurers. “...such insurers only act as an insurance service provider than as a risk bearing insurer. This amounts to fronting,” it said. “IRDA can increase the reinsurance retention limit if it wants. Every company does its risk assessment and only after a set limit, passes the risk to re-insurer,” said Nageshwar Rao, MD & CEO IDBI Federal Life Insurance. Insurers in India are free to choose their reinsurers and the retentions and the reinsurers do not come under the regulatory ambit of IRDA.
IRDA has also suggested a minimum equity component in guaranteed NAV products. “How can an insurer take exposure to equity when there is an aggressive guarantee (of highest NAV)? The regulator should not push the industry to take unnecessary risk,” said Andrew Cartwright, Appointed Actuary, Kotak Life Insurance. The industry is already reeling under the pressure of a slew of changes in the last two years. A sharp cut in commissions has forced a large number of advisors to quit the business. “Almost three lakh advisors have quit. This translates into huge losses given the high training cost on agents. We need time to switch over to new ideas and adapt accordingly,” said Kamalji Sahay, MD & CEO, Star Union Dai-ichi Life Insurance.
Many companies feel it is not fair for the regulator not to approve products on grounds of being complex when similar products were approved earlier and exist in the market today. “Industry does not know how to go forward. The products already existing in the market must be stopped first rather than blocking approvals of those filed now. Regulator and the industry needs to resolve the issue quickly, create a level playing field and move on with the business,” says Amitabh Chaudhary, MD and CEO, HDFC Life.
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The life insurance industry and the Insurance Regulatory and Development Authority (IRDA) are at loggerheads over a recent letter written by the regulator raising questions on the product design and certain practices of insurers.
Life insurers, who see this as an exercise by the regulator to justify the huge delay in product approvals over the last two years, have formed a core group to help build consensus among all players and present a single paper to the regulator, contesting the issues raised by the regulator.
The key differences are over the IRDA suggestions including making premium paying term equal to the policy term, questioning the ‘heavy reliance on re-insurers for each and every product’ and the risk it carries should a reinsurer default, creating barriers for insurers in launching too many funds under one product, and over the suggestion to increase equity exposure for the guaranteed NAV products.
In a strongly worded letter, the regulator said, “Lately more complex products are being designed and filed for F&U (file and use) clearance with the IRDA... several of the products are not in alignment with the best practices and, frequently lack clarity. The efficiency of the product clearance has been constrained by such features.” At a meeting on Tuesday, the Life Insurance Council — the forum of insurers — decided to jointly draft a response to the regulator’s suggestions. Many said discouraging single and limited premium terms would impact their cash flow management for the companies.
They feel that flexibility of paying for a short term and getting cover for much longer term provides flexibility to the customers and that should continue. “There are many customers who want to pay for a shorter term due to high incomes at specific periods, for example actors. Why should we kill this flexibility?” a senior official of a life insurance company told The Indian Express.
The regulator has also questioned life insurers’ tendency to rely too much on re-insurers. “...such insurers only act as an insurance service provider than as a risk bearing insurer. This amounts to fronting,” it said. “IRDA can increase the reinsurance retention limit if it wants. Every company does its risk assessment and only after a set limit, passes the risk to re-insurer,” said Nageshwar Rao, MD & CEO IDBI Federal Life Insurance. Insurers in India are free to choose their reinsurers and the retentions and the reinsurers do not come under the regulatory ambit of IRDA.
IRDA has also suggested a minimum equity component in guaranteed NAV products. “How can an insurer take exposure to equity when there is an aggressive guarantee (of highest NAV)? The regulator should not push the industry to take unnecessary risk,” said Andrew Cartwright, Appointed Actuary, Kotak Life Insurance. The industry is already reeling under the pressure of a slew of changes in the last two years. A sharp cut in commissions has forced a large number of advisors to quit the business. “Almost three lakh advisors have quit. This translates into huge losses given the high training cost on agents. We need time to switch over to new ideas and adapt accordingly,” said Kamalji Sahay, MD & CEO, Star Union Dai-ichi Life Insurance.
Many companies feel it is not fair for the regulator not to approve products on grounds of being complex when similar products were approved earlier and exist in the market today. “Industry does not know how to go forward. The products already existing in the market must be stopped first rather than blocking approvals of those filed now. Regulator and the industry needs to resolve the issue quickly, create a level playing field and move on with the business,” says Amitabh Chaudhary, MD and CEO, HDFC Life.
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