Irda is wary of products that provide unlimited amounts that risks are ultimately borne by foreign reinsurers to which the regulator has no control. He also criticized the life insurance industry to offer multiple policies under the aegis of a single product without any additional benefits to investors-an observation that the regulator of India's capital market had been on the mutual fund (MF) industry back.There times are 24 life insurers in India with close to Rs 15 trillion in assets. During the December quarter, the industry collected about Rs 1080000000000 premiums, according to the Life Insurance Council, the body representing the industry.
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"Irda may refrain compensation policies that have no limit on the sum insured," said a person with direct knowledge of the development.
Legally, Irda can not dictate the number of firm policies or some offers put a cap on the maximum sum insured as long as the insurer is capable of underwriting risks in the product, either directly or through a reinsurer. However, the regulator may ask the insurer about the rationale for launching a product before approving it.
The letter Irda, reviewed by Mint, designs questions of certain products, how they are sold, and how agents are encouraged to the cost of the insured and, finally, how insurers undermine their solvency.
He even said that the industry is moving toward giving foreign reinsurers. Fronting in insurance parlance, is an arrangement in which a primary insurer acts as the insurer of record by issuing a policy and passes the entire risk to a reinsurer in exchange for a commission.
Generally, the insurer is giving authorized to do business in a country where the risk is situated, but the reinsurer is not. In such cases, the reinsurer is appointed as a captive or an independent insurance company that can not sell insurance directly in a particular country.
"Generally, each insurance product must have a maximum sum insured to the insurer must accept the risk. Specifying" no limit ", and therefore have low retentions, it is of a question whether the life insurance industry is moving towards the front. This must be considered, "Irda said.
Each life insurance policy has certain amount estimated insured (or the maximum performance that the policyholder can expect at maturity) and two risk coverage of the pure components and savings. The component of the hedging policy is represented as underwriting capacity of the insurer.
Risks on the books of the insurer are required to be in line with its solvency margin. If some of the risk is passed to a reinsurer, the insurer must pay a certain premium to the reinsurer. Normally, the solvency margin is sufficient to bear the risks built into the books of the insurer as part of it is supported by the reinsurer. However, if the reinsurer defaults due to credit risk, the impact is reflected in the books of the insurer and it hits its solvency margin.
In India, Swiss Re and Munich Re are the two main foreign reinsurers. GIC Re is the only national reinsurer.
According G.V. Nageswara Rao, managing director and CEO of IDBI Fortis Life Insurance Co. Ltd., each insurance company must try to keep their own risk.
"Passing on the risks to a reinsurer is a cost premium to the insurer. Apart from the concerns raised by Irda, roping in a reinsurer, it is also guaranteed. But rates reinsurance premiums are more competitive than those of GIC Re to dissociate the risk of possible defaults of foreign reinsurers, we need another local reinsurer with competitive rates, "Rao said.
According to Irda, if an insurer has a limited ability to take risks and take the help of foreign reinsurers to provide insurance products, such a company is only as a provider of insurance and not an insurer. "These provisions mean heavy reliance on reinsurers for each product," he said. As they are subject to credit risk heavy, any failure of a reinsurer could undermine the solvency of the insurer.
SB Mathur, secretary of the Board of Insurance, said: "We are looking into the matter and (will) certainly address the issue."
Several strategies
Irda is also concerned about the multiple policies under the aegis of a single product.
Moreover, after questioning the MF industry to launch a series of similar products, without a significant body, the regulator of capital market in 2010 had suggested the merging of smaller systems with the biggest, but to avoid similar confusion for investors and save costs. The Securities and Exchange Commission of India has criticized the way the industry was the launch plan after another to help retailers gain more commissions regardless of the benefits of investors.
Irda said: "At the time of release, a set of funds under the product are usually indicated. However, funds very quickly under a given product proliferation. This proliferation has nothing to do with the size of the fund. This resulted in a situation where companies have a wide portfolio of funds, but the size of each fund could be very small. "It confuses consumers and may contribute to lower gains for them, he added.
Mathur said the industry is aware of this fact. "In addition to issues raised by other Irda, all funds will also need a regular audit," he said.
The regulator is also concerned about the insurance unit-linked products (ULIPs) which guarantee the highest value of net assets, and so-called guarantee fund returns. Over time, these products "tend to fixed instruments," he said, and added: "While this may be inevitable given the design of the product and its insurance carrier, it is surprising that several products to invest heavily in fixed instruments almost since their inception. "
He recommended a minimum equity component for a specified period of time for these products.
Irda has sought suggestions from industry on how issues relating to the reservation and pricing of guarantees could be evaluated. "Recognizing the significant burden of communication and the likelihood of communication problems in these products, would it not desirable to restrict the sale of these products on one platform, multi-pay?" He asked.
The regulator is also concerned about the failure of certain ULIPs with the rules of income tax in terms of insurance coverage and examines whether insurers could be the maximum possible loss that may incur ULIP buyer. Currently, insurance companies only talk about the possible returns from ULIPs.
Rao of IDBI Fortis said that until the insurer is able to manage costs and respect of a fund or product, the regulator should not be worried.
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