Insurance, like other financial businesses, is going through tough times. After a high growth phase over the last few years, the pace has tempered down, although the number of companies in the insurance business has increased along with fierce competition for the market pie. Jandhyala Hari Narayan, chairman, Insurance Regulatory & Development Authority (Irda), who took over six months ago, has been instrumental in bringing some changes during the trying times. He spoke to DNA Money's Nandini Goswami on the immediate concerns, growth prospects and challenges before the insurance sector. Excerpts:

How does global meltdown augur for the domestic insurance sector?

Growth will definitely come down. Insurance sector grew by over 30% in the past and I think it will grow by 17% in the current year. What experts and analysts predict for 2009-10 is that the impact may be severe with a lower growth. These are difficult times, but I see this as an opportunity for all insurance companies to take stock, build on respective efficiencies, devise new marketing strategies, do some housekeeping and become lean and fit. I do not think that there would be a slowdown in interest of foreign companies for getting into Indian insurance business. India is too important to be left out for any business.

Although Irda has brought in the concept of a mandatory format in the form of a final certificate stating customer satisfaction, customers still complain of mis-selling. Is there a further monitoring that you would do to streamline things?

The welfare of the policyholder is of prime concern always. The present grievance mechanism is a 3-tier one. In the first stage, the insurance company handles it through its respective in-house control system while the government handles it at the ombudsman level. The Irda would go for an overall regulation. We are having a meeting soon, where various stakeholders would think of ways to improve the grievance mechanism. A host of issues would be discussed — how companies can improve on their response time to grievances and also with regard to disclosures to reduce mis-selling. Well, we are all learning and may come up with a Version 2, where we could be issuing more regulations in this regard.

Do you think that in difficult times traditional plans would be a safer bet compared to unit-linked plans (Ulips)?

The proportion of Ulips against non-Ulip plans has been coming down. But ultimately, it is the customer's choice as to what he or she chooses to buy from the products available in the market. Our job is to set the guidelines and ensure that they are abided by.

A lot of recommendations have been made on unit-linked plans in the last two years. Are you satisfied with the present clutch of these policies?

The propensity to mis-sell is more in Ulips. In certain product categories, commission drives agents whereas insurance companies are driven by topline growth. Now to do that, premium on certain products in the first year is very high and subsequent years quite low. Originally, Ulips had a premium structure much like a traditional plan. But a clutch of recent plans from most insurance companies work on a model of significant flexibility, where premiums slide down every year. Companies say this helps the investor in times of a downturn. But, we plan to review and revisit some of these plans. On the other hand, there are issues of misrepresenting facts at times. What is printed may not be communicated. The drive is to make companies use simpler language. Wordings over time have been decided by legal and court rulings. But this issue is difficult to be solved in isolation and has to be addressed in relation to other domains of finance perhaps.

With some life companies planning to come up with an IPO, will you bring in changes in the rule for listing companies after 10 years? What about corporate governance in insurance firms?

Many companies are approaching 10 years and could come up with an IPO if they wish to. We are working on guidelines for this, and we are doing it in consultation with the Sebi. We hope to come up with something in the next six months. We are evolving rules for fair corporate governance practices as none of the insurance companies are listed on the stock exchanges. We are talking to Sebi in this regard as well.

Health is touted as the next big thing…

Health is a good growth story. However, one element of health will require amendment to the Act. The amendment will ensure a lower capital of Rs 50 crore compared to Rs 100 crore at present. But the main issue is of the promising potential growth in the sector where Rs 50 crore or Rs 100 crore really is not the issue. It's good that all insurance companies are getting into the health space.

What is your stand on LIC's position on 10% equity investment ceiling?

Well, we're not focusing on it right now. We'll see when LIC brings down its holding over 10%. But we've told them, as far as new investments are made, LIC has to hold its levels at 10% as the limit.

Will you look into the recommendations of the Govardhan Committee report on agent productivity?

As far as agent productivity is concerned, the degree of freedom is decided as per the Act. On allowing banks selling products of multiple insurance companies, we are yet to analyse it.

What about guidelines to allow insurers to hedge their portfolios with derivatives?

Insurance companies at present cannot hedge their portfolios with derivatives. We are working on this, but very slowly. On mergers and acquisitions, we are working on draft guidelines.

What do you think are one of the biggest challenges of the insurance industry?

Expansion of the insurance market is very crucial I think. The rural market can still be expanded.

Nandini Goswami/ DNA-Daily News & Analysis Source: 3D Syndication