Only fair products will be made available: Insurance watchdog

The insurance industry is grappling with various  challenges after the new unit-linked insurance plan (Ulip) norms came into effect from September 2010. But there is still a lot more to be done, hinted Insurance Regulatory Development Authority (Irda) chairman J Hari Narayan (pictured). At the CII Insurance Summit on Tuesday, he spoke about various measures the regulator is planning for the industry. Excerpts from Hari Narayan’s interaction with the media:

On having simpler products
We are looking at making the language simpler. Some insurance product material is simply unreadable. If the insurance industry wants to increase penetration, it has to be consumer friendly. If we make products simpler, it will automatically increase penetration. Why is the industry not working in that direction?

Some of the plain-vanilla products do not require the legal language attached to them. It is a hangover from the past. We may not be looking at basics.

There are some products that require the legal contract, but that is not true for all. There can be a two-page feature of simple explanation and then the legal contract. I don’t see that innovation coming in.

On allowing only fair products
We will make available only fair products. Every product will be tested against the concept of fairness and robustness and only then will it be permitted into the market. That is important.
In 2000 life insurance had set a very high standard. Some time in the past the confidence was shaken and the regulator’s office has brought in rapid changes.

On universal life policies
There is too much play in the universal life products space. Similar to Ulip guidelines, we will be putting in place guidelines for universal life policies. These are a new kind of products and pose different challenges, risks and regulatory concerns.

Only fair products will be made available: insurance watchdog
Here, the term and the sum assured are flexible. They are different from Ulips in that there is no specific unitisation. We will have to be careful that the flexibility does not undermine consumer safety.

On capping charges on traditional products
Traditional products have been around globally for 40-50 years. We would hesitate to tamper with them.

On Ulip reforms
Present concerns on the product have been addressed.
On allowing more than one insurer through bancassurance
The group has not yet firmed up a decision. But what is being discussed is whether tie-ups should be limited by geography. So a bank can have one insurance tie-up in certain regions and another in others.

The service levels and buy-backs, policy renewals etc are better in the agency channel than in bancassurance. There have been cases where the understanding of insurance products in bancassurance is not up to the mark. If we bring multiple insurers, will it lead to more confusion? That is being thought of. But the issue is very much on cards.

On outsourcing of insurance
We are looking whether outsourcing of certain activities may help reduce costs. We are seeing which areas or activities are not core to the insurance business and whether they can be sourced. It is top on our priority.

We are also looking whether policy documents can be available on the internet rather than in the physical form. The legal issues and safeguarding of these structures is a challenge and we need to fix the lacunae.

On IPO norms
The market regulator has formed a committee called the SCADA. The committee has made its recommendations and I understand the market regulator will be considering them shortly.

On portability of insurance
India is ready for portability as a means. You can see it in many spheres of activity. We must give it a fair try. We will be moving towards it sooner rather than later. Largely it will be an issue for health and motor car. It will cast a burden of sharing client information across the industry.

In Ulips, lower performance may call for portability…
Yes and no. There we will have to balance and manage the churn of portfolios. In case of churns, the person affected will largely be the policy holder. Therefore we have concepts such as locking-in.

On insurers launching infra bonds
There is a regulatory concern. We will put in limits on that. There will be restrictions on the size of the corpus.