Unlike other regulatory authorities in India, the Insurance Regulatory and Development Authority (IRDA) seems to have acquitted itself quite well during the past five years. The perception that IRDA would be instrumental in shaping the development of the private sector and also regulate the public sector insurance companies, turned out to be unfounded.

In the second part of his interview to domain-b, C S Rao, chairman, IRDA, talks about the corrective measures initiated by IRDA to regulaate the non-life segment of the insurance industry.

How have the non life and the reinsurance sectors fared in the last five years?
The general insurance business has done well by recording double digit premium growth rates since liberalisation. It has come out with innovative products including weather index-based crop insurance policies, health insurance covers, liability products and others. The new players control nearly 20 per cent of the market, which is a good sign of customer confidence.

Reports of market misconduct have reached the IRDA with some insurers indulging in rebating to the insurance seekers as also payments of excessive commissions to their agents. The IRDA has also received complaints of insurers either declining to provide cover for motor third-party insurance or load the basic premium excessively beyond permitted limits. Some complaints on denial of claims in health insurance policies on grounds of the pre-existing disease clause have also been reported to the IRDA.

The reinsurance industry has not witnessed much change. The net retentions in the country have come down, but that was expected with the opening up of the sector because the companies have been given the freedom to approach reinsurers independently. The reinsurance market has not been able to attract any reinsurer in the country.

How has the situation altered for intermediaries - (a) brokers (b) agents (c) third party administrators and (d) surveyors?
The insurance intermediaries in the country have gained from liberalisation of the insurance sector. The IRDA, for the first time, recognised the broker channel for distribution of insurance products and came out with a set of regulations for granting them licenses, as well as other measures connected to the profession. There are over 300 insurance brokers operating in the country who place a significant portion of the business with insurance companies.

There have been reports of brokers adopting unethical means in their business dealings and in such cases the IRDA has been quick to act against them by either suspending or cancelling their license.

The agents have contributed immensely towards the spread of insurance business in the country. They are becoming increasingly professional and people are viewing this field as a serious career option. Their role has been widened to cover corporate agents. However, due to some reports of unethical practices, the IRDA has revised its guidelines, making them more stringent.

As a step towards providing greater facilities to the insurance consumer, the IRDA has issued licenses to third party administrators (TPA). The service standards in health insurance have improved tremendously after the entry of TPAs in the market. Some grievances on non-settlement of claims, denial of medical services were reported but after a joint meeting with the insurers, the issues were corrected.

The IRDA is setting up the Institute of Surveyors and Loss Assessors as a step towards professionalisation of surveyors. It is expected that they will be granted chartered status soon.

What are the regulatory issues that IRDA is currently looking at in respect of the non-life sector?
Some of the areas that require greater attention are rural, social and health sectors. The penetration in these sectors is still low given the huge potential and IRDA would encourage the players to exploit it. The IRDA has notified the micro-insurance regulations, which should enable the insurers to increase penetration in the forthcoming year.

The IRDA has already announced the roadmap for detariffing from 31st December, 2006. Milestones have been laid down for companies to achieve as a prelude to detariffing. The IRDA will be monitoring the progress by the companies to ensure that they adhere to the time frame for de-tariffing.

IRDA seems to be micro-managing the sector - for instance, the detariff roadmap states that underwriting officials should not report to marketing officials. Shouldn't companies be free to decide on reporting structures?
It is incorrect to state that IRDA is getting into micro-managing the sector. The role of IRDA is to regulate and develop the insurance industry in the country and it is performing that task. The example micro managing you mentioned does not imply micro-managing but seeks to set right the current situation which gives precedence to marketing over underwriting.

The acceptance of risks by the insurance companies currently is not based on risk evaluation. The pressure to get business is so great that they often underwrite the risks without charging adequate premium. In order to insulate the underwriting staff from such marketing pressures it was felt necessary that reporting should be separated for the two departments.

On reinsurance - what is the industry's retention rate? What is IRDA's plan to increase the retention rate?
In case of life insurance, the reinsurance retentions are not very relevant as the reinsurance cessions are very small. The reinsurance retention of non-life insurance industry for the year 2004-05 is 86.45 per cent. We are examining various options for increasing the reinsurance retentions within the country and some these include:

• advising insurers to handle their reinsurance more effectively by amending their reinsurance programmes and increasing net retentions commensurate with their financial strength
  
• using national retention capacity more effectively for making facultative placements;
  
• advising companies to work together and monitor placements more closely;
  
• discouraging use of quota share treaty and
  
• training programmes in reinsurance for managers to enhance skills of management.

How does IRDA ensure that its reinsurance regulations are strictly followed? One stipulation is that overseas reinsurers should have at least a BBB credit rating from global credit rating agencies, which is frequently violated.
We monitor the reinsurance activities of the non life insurers and ensure compliance of the regulations through various reporting requirements. The compliance begins with the filing of the reinsurance programme for the forthcoming year, 45 days prior to the start of the financial year.

It is verified that the reinsurance programme filed by the insurer is in accordance with the objectives laid down in the reinsurance regulation. The reinsurance programme is analysed for the net retentions of the company, extent of protection taken, lines of business covered and others.

The companies file copies of their treaty slips and cover notes within 30 days of start of the financial year, which are scrutinised by us to check the security of reinsurers, reinsurance costs, whether retentions are commensurate with the financial strength, there is adequate spread of reinsurance placements and others.

We also examine the reinsurance statistics submitted by the insurance companies on the specified format. There are five forms which have been specified by the Authority.

It is correct that the reinsurance regulations stipulate that the insurers shall place business with only those reinsurers who have enjoyed a rating of BBB by international credit rating agencies. It is also true that in some cases of proportional treaties, reinsurance placement has been done with reinsurers who do not enjoy BBB rating.

However, this is because insurers either have very old relationship or have been involved in setting up of these outfits. The IRDA has granted approval for these arrangements subject to the condition that those reinsures will either get themselves rated or will not be utilised for placement of reinsurance.

What are the punitive or disciplinary actions taken by IRDA against the insurers?
So far IRDA has taken punitive and disciplinary action against one insurer for not complying with the IRDA's (Obligations towards Rural and Social Sectors) Regulations, 2000.

What is the future for the non-life and reinsurance segments?
The first phase of reforms is over. The stage is ready for consolidating the gains made in the first phase of reforms. Here, too, we expect some segmentation in the market happening… some players becoming financial conglomerates, others transforming themselves into niche players. Personal lines of insurance will be the growth engines for insurance industry in times to come.

The general insurance industry will see rationalisation of premium rates and end cross-subsidisation following detariffing. This will bring cost efficiencies in the general insurance industry. The industry will also see more innovative products. The health insurance industry will grow at steady rate because of the low coverage.

The reinsurance market will increase in size. India will emerge as centre of reinsurance hub for the South Asia. With increasing liberalisation, there could be reduction in obligatory cessions.

There have been instances where insurers have inordinately delayed honouring the 'insurance ombudsman' order. Your view.
The IRDA takes a very serious view of insurers delaying honouring the ombudsman awards. Ombudsmen are playing an extremely important role in resolving customer grievances. The companies have also given an undertaking at the time of grant of licenses that they will abide by the awards of the ombudsman and we expect them to honour those commitments. There may be some technical issue but the companies cannot take those instances as an excuse to delay the genuine complaints of insuring consumers. We look at not honouring the awards of ombudsman as an adverse feature in the governance of insurance companies.

There are complaints that the consumer's voice does not reach the IRDA. For instance when the IRDA called for public opinion on the terms of reference for K P Narasimhan Committee, how did the IRDA expect to receive public opinion on the net given the low penetration of insurance, telecom, internet in the country? Only IRDA gave its views on the grievance redressal machinery.
Internet has become an important channel of disseminating information. The IRDA regularly invites views from different parties by putting papers for comments on its website. It is not expected that IRDA will take out advertisements in the print media and invite comments. The current means is the most cost effective way of receiving feedback. IRDA received numerous responses from all quarters.

What is IRDA's ad budget?
The IRDA incurred Rs3.70 crore towards promotional expenditure in the year 2004-05. We have no preference for any particular media and have used Doordarshan extensively in the past. IRDA does not use online promotion.