Low penetration of insurance in India cannot be linked to statutory capital and solvency norms as they are entirely different, the experts added in the context of the Indian government planning to reduce the minimum capital for an insurance company.
“The cause for the low insurance penetration should not be attributed to the extant statutory capital and solvency norms, coupled with robust regulatory framework, which have withstood the test of time,” D. Varadarajan, a Supreme Court advocate specialising in company/competition/insurance laws, told IANS.
It is more than two decades since the insurance sector was opened up on the pretext of increasing penetration with better products than that was vended by the government companies and additional funds for the infrastructure sector.
However, the twin objectives have not been realised as the insurance penetration is still low.
A large portion of insurance penetration in India can be attributed to the government insurance schemes – central and state.
Later, on the pretext of getting more foreign direct investments (FDI) the equity holding percentage for foreign joint venture partners in Indian insurance companies was hiked from 26 per cent to 49 per cent and then to 74 per cent.
Again not many foreign partners have upped their stakes in their Indian joint ventures to 74 per cent bringing in the earlier touted millions of dollars.
Now, again on the pretext of increasing penetration the government is planning to bring down the minimum capital for an insurance company and allow regional and niche insurance companies.
“Not very long ago, Parliament had advisedly kept the minimum capital requirement for an insurance company at Rs 100 crore and Rs 200 crore for a reinsurance company,” Varadarajan said.
“As insurance is a capital intensive business, even the above limits are only moderate, going by the solvency requirement of 1.5 times of liabilities. Virtually, in today’s context there is no insurance company which has pegged its capital at the threshold limit, and it is much more, to comply with the robust solvency requirements.”
The government instead of reducing minimum capital for corporates can allow cooperative societies with lower capital and also relax application of certain sections of Insurance Act, said K. Subrahmanyam, a retired Executive Director (Actuary), IRDAI.
“There was amendment of Section 94A of the Insurance Act, 1938, vide Insurance Amendment Act, 2002, which gave sweeping powers to the IRDAI to register cooperative societies with any lower amounts of capital, and also to relax application of certain sections of the Insurance Act. During 2002 to 2014, there was no cooperative society. In 2014, this section was deleted,” Subrahmanyam told IANS.
Now the IRDAI proposes to bring back Section 94A in different forms, with an intention to increase insurance penetration. Instead of doing such, the central government can restore Section 94, so that IRDAI can register any co-operative society as an insurer, according to the needs of the society, he added.
When the banking industry was embroiled in various issues like non-performing assets (NPA), financial scams and others, the insurance industry acquitted itself well and came out unscathed.
That was possible due to the statutory and regulatory dispensation, especially in regard to capital adequacy/solvency norms, strict investment regulations regarding investment of insurance assets, meticulous oversight by the appointed actuaries and their periodical reports to the insurance regulator, Varadarajan remarked.
Given the promoter exits, merger and acquisitions that have happened in the sector till recently the big question is whether there is a market space for more insurers.
The first Chairman of IRDAI N.Rangachary had told IANS that the insurable population should be properly estimated.
If insurance penetration should increase then the IRDAI should address the basic issue of public confidence that a claim will be settled fast and in a just manner.
“The IRDAI focus should be on (a) customer satisfaction-the major problem is that customer is not answered immediately in case of any issue; (b) mis-selling by intermediaries including banks and c) the behaviour of intermediaries and insurers towards customers,” Subrahmanyam told IANS.
Varadarajan said the policymakers should bear in mind the conditions that led to the nationalisation of life and general insurance businesses.
“Hence, history should caution and not repeat. Instead, the focus should be on shunning micro-management of insurers and to provide the needed ‘play in the joints’. It is also time to introspect as to what has been done by the Regulator towards insurance advocacy towards orderly growth of insurance business and protection of interests of policyholders, as enshrined in the preamble to the IRDA Act, 1999,” he added.
“Therefore, any attempt at amending the statutory and regulatory framework, should clearly keep away from tinkering with the ‘basic structure’ of the insurance laws and regulations so as not to aim at low hanging fruits,” Varadarajan said.
(Venkatachari Jagannathan can be reached at firstname.lastname@example.org)