LIC’s debt investment cap will be doubled

India’s largest life insurer, the Life Insurance Corporation of India (LIC), may now be able to invest up to 20% — or twice the current cap — in debt, if the exposure is to exchange- traded bonds, J Hari Narayan, chairman of the Insurance Regulatory and Development Authority of India (IRDA) said on Tuesday.

That’s because the regulator thinks exchange-traded bonds are more liquid.

LIC’s debt investments totalled Rs1.53 lakh crore in the year ended March.

“IRDA is planning to relax the cap for investments by the Life Insurance Corporation of India (LIC) to 20%, provided it is in exchange-traded bonds. Currently, it can have a 10% exposure in debt as well as equity of any particular company,” Hari Narayan said.

As for IPO guidelines for life insurers, he said it’s expected in a week.

But final guidelines on pension or annuity products are still pending. “We had written to all the stakeholders and they have reverted with comments. We are analysing those to see how we should respond to them. Hence guidelines on pension products may take another 15 days,” Hari Narayan said.    

Meanwhile, a report by McKinsey & Co said the insurance industry will grapple with three major developments — continuing regulatory action, changing customer demand and technological advances - going forward.

The agency force in India is the least productive and apparently the most costliest too. The amount of expenditure made by insurance companies on their agency force is the highest in Asia, the report, which was released at an event on Tuesday, said.
Hari Narayan said even though there are alternative distribution channels, the agency force cannot be fully avoided.

“Today’s challenge for the industry is how can we make the agent channel the best, more efficient and meaningful,” he said.
The renewal of an insurance agent’s licence depends on what’s called the persistency ratio.

Under this, the consistency and persistency of policy holders is a key factor determining the renewal of licence for agents. Any persistency less than 50% is considered unhealthy.

The McKinsey report said a 75% persistency is necessary for a sustainable insurance industry.

IRDA is doing its best to reshape the agency force, Hari Narayan said.

“We have tied up with one of the premier institutes in the world to redraft the scheme and syllabus for agent’s learning. IRDA suggests that there should be two levels of agency force. Agents of the insurance companies will be provided with a licence initially after standard process and after completing two or three years as standard agents, they can be made senior agents.”