The insurance regulator is only regulating the sector and not developing it
Chennai: The 81-year-old founder of Shriram Group — R Thiagarajan, is known for his straight talk. Having built the financial services conglomerate, he feels that the insurance industry in India is faltering. He is sore that life insurance penetration is abysmally low at 3.5% and claims under general insurance are repudiated at the snap of a finger. Launching frontal attack on IRDA, he says that the regulator is stuck with colonial vestige. Thiagarajan suggests ways for revival of the industry. Excerpts:
What ails Life Insurance business in India?
The problem starts from the agency. Life insurance should be sold by a person who has the talent to sell. Imposing restrictions on appointment of agents has crippled the industry. IRDA was influenced by what happens in America and Australia. Only thing that an agent must know and convey is: if you die, your family gets so much money and if you are alive, you will get your investment plus returns. The fellow who satisfies all the conditions laid down by the insurance regulator does not know how to sell insurance and the fellow who has the ability to sell is prevented from selling. The best thing that can be done, is remove all restrictions for someone to become an agent. The industry needs more salesmen. There is a big entry barrier today.
IRDA imposed these because of mis-selling. Isn’t it necessary?
More knowledge about a product, will lead to more mis-selling. How can someone mis-sell a product if he understands it in its rudiments. Mis-selling is misleading people to accept something. That can be done by anyone. What makes you think that a qualified agent, certified by IRDA does not mis-sell a policy? To me nothing is wrong in mis-selling a life insurance product. At least the person who buys it, gets a cover, which he may not if he didn’t buy it.
Inducing to buy a policy, isn’t it wrong?
Every sale, regardless of what is being sold, has an exaggerated element to some extent. If you buy a refrigerator, fan or motor car from me, I may offer you incentives. That is not a criminal offence. A thing that is a protection to the family, when sold with an incentive is a criminal offence. Sounds ridiculous. This rule came about in 1938. It was introduced to protect British insurance companies from Indian entities which were offering high incentives for signing up a policy. The British insurers asked their government to introduce penal provisions for incentives, and we continue with this to date. Why should there be inhibitive restrictions on something that is beneficial to the society? The inducements have not stopped. Insurance companies have created bogus accounting systems to cover up these inducements. Insurance selling requires inducement. We allow cash backs for purchases on Flipkart, Amazon and PayTM. What is wrong in allowing inducements for insurance?
General insurance, other than motor portfolio is in precarious state. Your observations:
Insurance is the only way an enterprise can be saved. I have seen businesses shut down because of no insurance. The insolvency possibility gets significantly reduced if insured.
Today a general insurer admits and disburses the claim, if it is upto or equal to the premium paid. If there is anything significantly higher, you can be rest assured that the case is headed to the courts. Insurance has been made meaningless.
Why and what is the way forward?
The reason is because, in this highly competitive space, premiums have dropped to levels which cannot be sustained.
Irresponsible competition is killing the general insurance industry. If you repudiate a claim, there is nothing that the enterprise can do than go to court. And the courts take 25 years to get the award.
IRDA should introduce a set of 15 tribunals for property claims, similar to motor accident claims tribunal. The judgement by this tribunal need not be binding on the insurance company, but they should say that the insurance company should provide for this claim in their accounts. That is enough to make insurance companies wake up. Today, if you repudiate a claim, you don’t provide for it in the books. Therefore insurance companies will pay the claim and increase their capital and increase premiums to reasonable levels. Also, there should be a provision where the insurer is asked to pay the claims from the date of the accident rather than from the date of receipt of claim. There will be furore, but this will change the way general insurance claims are settled.