New rules, lack of clarity have insurers in a fix

Insurers are in a tizzy over the host of new regulations laid down by the Insurance Regulatory and Development Authority (Irda) in recent times. To make matters worse, clarity eludes on several counts.

“The slew of interventions and delayed responses on certain issues would hinder smooth running of the business,” said an official from the life insurance industry.

Take product approvals. Officials say the waiting time is anywhere between five months and a year, which particularly hits general insurance players.

“This may be due to the lack of enough workforce in the regulator’s office. Nothing is clear on the Budget proposal which says that in order to avail tax deduction, one will have to go for a life cover which is at least 10 times the annual premium paid. This apart, the product has to be redesigned and re-priced. There are already 5-6 products that we have filed and are pending with the regulator,” said G N Agarwal, chief actuary, Future Generali India.

Irda has also not offered any specific reason or clarification on pension product delays.

“Because of approval in product delays, it is likely that there won’t be any pension products for the next 8-9 months, the reason for this can probably be because the insurers are still deliberating over it,” said Agarwal.

Further, the posts of member life and actuary at Irda have been vacant for a long time, which spells more uncertainty ahead as far as approvals and clarifications go.

As such, the regulator has not approved pension products filed by insurers in line with guidelines that came out last November.

The final guidelines mandate the pension product to come with upfront benefits applicable in the case of death, surrendering or vesting.

The process is still stuck at a discussion level.

The bancassurance norms are also seen as restrictive, holding back insurers from going pan-India. In the past, life as well as general insurance players have approached the regulator to sort out the matter, given the prospect of their geographical tie-up with banks.

As per Irda’s draft regulation, the country is divided into three zones - A, B & C. This essentially binds insurers to a single bancassurance partner with a maximum of nine states in Zone A and six states in Zone B. As a result, there is no scope left for other insurance companies to enter into agreements with the same bank. 

Earlier, Irda chairman had said, “We are considering concerns raised by Indian Banks’ Association (IBA). But I fail to be persuaded by some of their reservations on tie-ups based on geography. There will not be many changes in the final guidelines.”

Asset liability management (ALM) remains another tough nut to crack. Life insurers are still waiting for clarity on some linked and non-linked policies. The confusion is largely because the present value of the premium exceeds the present value of expense and benefits payable and hence, it gives a negative value. The guidelines make the calculation of duration of flows of assets and liabilities and receiving premiums difficult, giving insurers a hard time to optimally match their assets and liabilities.

A senior official with a life insurance company said, “There are many grey areas with the ALM guidelines. There is no clarity yet on the effective date of implementation, calculation of duration of asset liability mismatch and so on.”