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Open up so the sector won't stink any more, advises insurance regulator

Insurance Regulatory Authority chairman N Rangachary today came down heavily on the lack of competition and absence of choice to the consumers in the insurance sector and called for opening up the sector to private players to facilitate improvement of standards.

Delivering a lecture on ''State of the Insurance Industry'', organised by the A D Shroff Memorial Trust in Bombay today, Rangachary lamented on the shortcomings of the insurance industry in the country saying that competition does not exist both in life and general areas.

The Indian insurance industry is completely nationalised and the two major players, General Insurance Corporation and Life Insurance Corporation, enjoy a virtual monopoly status, he observed. The quality of service is poor as the present systems in the insurance industry seem to give more importance to the adherence to formalities and procedures rather than providing the end-product to the consumer.

''We seem to revel in the small print and see to it that the customer regrets taking an insurance cover,'' he noted.

He said that the insurance sector lacks competition and the state-controlled insurance companies follow the same work norms, are staffed by the same people with the same ambition, commitment and work ethics.

''Except for a change in the insurer's name, the customer has to meet a uniform treatment -- of indifference and absence of choice. This system is no different from a monolith with the result that over a period of time, development (of insurance) has become stagnant,'' he averred.

Highlighting the poor state of affairs, he said that India is one of the poor served nations in insurance. ''For a country which is claimed to have the fifth largest economy in the world, the cover that its citizens have with regard to insurance is next to nothing,'' he said.

According to him, insurance penetration in India is the lowest in the southeast Asian region as only 18 per cent of the population is covered with insurance and around two per cent of the gross domestic product is total premium income from insurance business.

He said that though LIC and GIC is spread out in every nook and corner of the country, but this does not ensure that the market is fully covered.

He felt that absence of players does not give a healthy tone to the system. He said that even the Malhotra committee had suggested broadening the insurance sector.

He further said that globally insurance business is broadly classifiable into three significant areas -- selling of policies and collection of premia, maintenance for retention of business and payment of claims. ''In the Indian situation, we seek to have too many people looking after the maintenance and not many doing either the sales or claim settlement portion to the extent desired,'' he remarked.

The IRA chairman said that the approach of the present insurance players is not consistent as professional insurers nor is there transparency which will enable the public to accept the stand of insurance companies as the truth. ''We seem to lack planning and foresight in the matter of extension of cover which prevents a delay in the settlement of a claim,'' he added.

Rangachary said that entry of new insurance companies into the Indian market will help stem the tide of the outflow and develop the indigenous capacity and strength of the market. He termed the remittance by GIC of nearly 16 per cent of its premia offshore as reinsurance as a ''drain on forex reserves and an export of capital in a starved economy''.

He said that companies entering the insurance business would need capital to the tune of Rs 2 billion to comply with solvency norms.

''All the new entrants must be prepared to bear operational losses for the first five to seven years,'' he opined.

Rangachary said that opening insurance to both the private and foreign players would make existing players more efficient in terms of operational costs, consumers' perspective and products.

On the likely share of the foreign companies, he said: ''Whenever markets are opened up, allowing free participation of players. Foreign companies have cornered only 10-15 per cent of domestic insurance business and the bulk of the business remains with the domestic companies,'' he said.

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