Mumbai: Sunil Behari Mathur, former chairman of Life Insurance Corporation and a veteran insurance professional, has a new challenge. In his new role as the Secretary General of the Life Insurance Council, an industry body that deals with policymakers and regulators, he has enhanced the image of the life insurance industry. Mathur spoke to Prashant K Sahu about a host of issues ranging from mis-selling of products to foreign investment ceiling. Excerpts from an interview Why is life insurance penetration so low?
Since the insurance sector was opened up in 2000, the penetration of life insurance has more than doubled from around 1.5 per cent of GDP to about 4.2 per cent of GDP. The world average is around 4.5 per cent. We are coming very close to the world average. In terms of ranking, India is now at 18 compared to 30 earlier.
As we have a large population and the GDP is growing fast, penetration will continue to improve. The growth in the life insurance sector was not good last year due to a decline in the single premium and LIC did not do well. However, the insurance penetration will be close to 5 per cent in India in the next two to three years.
Premium will continue to grow at 30-40 per cent annually. Insurance companies may not have done well in April-May this year, but the business has picked up from June.
What will push the growth in life insurance?
The main engine of growth used to be unit-linked insurance products (Ulips). But as the capital markets are going through a rough time, the growth in Ulips is going to be lower this year.
Companies are now launching conventional and hybrid products with ULIP features. Growth will largely depend on how the products are marketed and the number of agents to be added. We expect an addition of about 700,000 new agents this year.
Why does one still hear complaints of mis-selling?
There have been reports of mis-selling. About 50 million policies were sold in 2007-08, of which 10 million were sold in the rural areas where awareness is not very high. There is transparency, but many people do not understand insurance products.
The industry has adopted many safeguards. Only qualified agents are now allowed to sell products. The illustration of products literature is overseen by the Insurance Regulatory and Development Authority (Irda). Moreover, the rate of returns provide a scenario of good and bad times. The council is authorised to revise these indicators.
The returns cannot be more than 10 per cent during good times and less than 6 per cent during bad times. Before the sale of products, insurance companies have to disclose the fees for asset allocation, fund management and surrender for each year.
There is a clause that allows a customer to return a policy within 15 days if some conditions were not explained earlier. These steps are taken to ensure there is no mis-selling of products.
Is the 26 per cent foreign investment ceiling affecting the insurance sector?
Insurance is a capital intensive sector. The Indian promoters, who hold 74 per cent stake, find it difficult to infuse capital as foreign promoters can only bring in 26 per cent.
We hope the realignment of political forces at the Centre will be good for economic reforms. The amendments related to the insurance sector, including more foreign investment, need to be approved.
Should the resource-raising avenues be expanded?
Something can be done right away. Out of the 150 per cent solvency requirement, 100 per cent is obligatory and 50 per cent is at the discretion of the regulator. One does hope that at least the 50 per cent discretionary portion is allowed through tier-II capital and other hybrid instruments.
Source: Business Standard
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