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To broaden the investment options of insurance companies, the IRDA (Insurance Regulatory and Development Authority) is considering raising their investment limit in bonds to 20 per cent provided they are exchange traded.
The current norms allow insurance companies to hold only 10 per cent of their total investments in any company.
The IRDA Chairman, Mr J. Hari Narayan, made these comments on the sidelines of the Assocham Insurance summit.
If the regulator ups insurance companies' investment limit in bond markets, then it will channelise long-term investment in infrastructure projects and boost the bond market, say analysts.
Traditional products
The insurance regulator recently issued letters to all life insurance companies, seeking details of traditional products which have insufficient cover in relation to the premium. Explaining the rationale behind the letter, Mr Hari Narayan said that it is relevant in terms of the revised Direct Taxes Code, where the relationship between the premium and sum assured is very important for calculating tax deduction.
The regulator also said that it is examining the ‘highest' NAV products offered by life insurance companies. “We are examining how many products are offered in the category and the communication by the insurance companies. In my view these products create miscommunication and may lead to confusion,” added Mr Narayan.
Agency Channel
An Assocham-McKinsey report, which was released on Tuesday, said that the Indian agency channel, which is all pervasive, is the least productive and perhaps the mostly costly of all the distribution channels.
“This is surprising. There are countries where agency channel vanished in 5-6 years, particularly the UK. We do need the agency channel in the decades to come. I don't see this channel being supplanted by financial advisors, bancassurance or broker channels, which are the three other options,” said Mr Narayan.
One of the reforms measures that is being envisaged is renewal of agency licence based on a certain threshold of customer persistence. “Whether the persistence ratio (policy renewal by the customer) is 60 per cent or 75 per cent is something that the IRDA needs to take a call,” said Mr Narayan
Agents — two levels
To ensure that agents can aspire for a career path in the insurance industry, the regulator said that creation of two levels of agents can be considered — one is the regular standard agent, and after a few years of experience or clocking certain number of policies they graduate to become a senior agent.
Bancassurance channel
On bancassurance, Mr Hari Narayan said that an IRDA appointed committee had recently submitted its report and that its recommendations were under the consideration of the regulator.
The committee is understood to have recommended that a bank can be a bancassurance partner for two insurers. The regulator is studying certain weaknesses in this segment, such as only a small portion of bank branches is actually selling insurance policies and the claims processes in these branches.
“We are yet to crystallise our views. It is being considered,” Mr Narayan said.
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