The government is poised to unveil a slew of measures aimed at reviving the insurance sector and is leaning hard on regulator IRDA to ease rules that it believes are hobbling the growth of the industry.
On the cards in the coming weeks are faster approvals for insurance products, relaxation in investment norms for insurers, allowing banks to tie up with multiple insurance firms and enhancing the pool of insurance agents to improve distribution, officials familiar with the matter say.
The government, which has been trying to make financial products more attractive to draw investors away from assets such as gold, is also looking at lowering the service tax on insurance premiums.
Finance Minister P Chidambaram has convened a meeting with the Insurance Regulatory and Development Authority (IRDA) on Wednesday to firm up proposals to enhance retail participation in insurance. “You can expect some crucial announcements in insurance over the next two weeks,” a finance ministry official said.
Sales of life insurance products fell sharply in the last fiscal year as the insurance industry, already reeling under a stricter regulatory regime following allegations of mis-selling, was hit hard by a fall in the equities market that took the sheen off unit-linked products.
Last week, the financial services secretary DK Mittal met IRDA Chairman J Hari Narayan to iron out differences over some suggestions made by the insurance industry that have found favour with the finance ministry.
The industry, for instance, wants the IRDA to allow a ‘use and file’ system for insurance products to facilitate faster launches. At present, insurers can launch products only after obtaining the sector regulator’s approval.
But the IRDA feels that it may not be the appropriate time for a switch because the domestic insurance sector lacks the maturity that is prevalent in more developed markets.
Main Worry is Mis-Selling
The regulator argues that in India the persistency in life insurance policies—the percentage of business retained without policies lapsing or being surrendered— is low compared with the global average. Also, it feels that insurers cannot accurately forecast the market for their products and this, in turn, could impact performance.
“Our main worry is misselling of insurance products. We want these products to be more secure for investors,” the IRDA chief told ET. However, officials privy to the talks said the finance ministry is leaning hard on the IRDA to allow ‘file and use’, at least for simple products.
