The rise in equity markets and investor sentiments may have benefited the insurance sector but the industry still has not witnessed clear signs of growth coming back. While the industry has been under stress for the last four years, Rajesh Sud, CEO & MD of Max Life Insurance, told Sandeep Singh that time taken on product approval still remains at elevated levels and the responsibility lies with both the product manufacturers and the regulator. Excerpts:
It seems the industry is lagging in action. What is holding the sector from coming out of the downturn?
It is tougher as of now and that’s a fact and reality. While part of it is a result of economic slowdown, partly it is a result of change in products and regulation. I think a lot has happened and some new things have been tried such as around insurance marketing firms, focus on common service centre (CSC) pilots, multiple meetings have happened and products have been defined to leverage the CSC network and also get the financial inclusion agenda progressing.
There is a focus on e-depositories. While several things have been done, have they translated in growth, the answer would be, no. The industry has shrunk by 3 per cent. All these steps would come good in the long run but till then there will be a phase of transition that the industry will go through.
What do you think is needed from the government and regulator that may set things rolling?
The big thing that will push things forward is the Insurance Amendment Bill which will bring in a lot of structural changes and give rule making powers to the regulator. At IRDA’s level there are few things that the industry is in dialogue — one is to look at the product approval process and see how there can be more transparency and expediency.
Both the regulator and the industry have to work together on this. There is a feeling that the industry can be a little bit more deliberate on the number of products filed, how are they different from each other and on adhering to the spirit of regulation.
Almost two years back, the finance ministry had done an exercise asking IRDA, the average time taken to approve products and it stood at around 344 days for health and 105 days for life. How is it now?
Going by our experience, I would think that the time taken is still around that. There is a need to improve turnaround time but it is a shared responsibility where the industry has to also file smarter and more accurate versions of the product and the regulatory process has to also pick up a bit.
IRDA is also stepping in and has over the last few months invited actuaries and people from companies to share with them what they want done and discuss why some products filed are not getting approved.
What else is required from the regulator?
New norms prescribed on how some products can be manufactured are leaving very little economic interest for shareholders and distributors and hence those products are not coming. For example, variable insurance products, which was a robust category accounting for 15-20 per cent of industry sales, has disappeared after the regulatory clampdown and nobody in the industry has been able to manufacture a product on those economics. So the regulator can assess the growth process.
Even in the agency model there is an emphasis currently on a design where there is a lot of fixed cost of supervision built into it. You need to think of making the whole agency model more variable in terms of cost efficiency.
How much is hanging on the insurance Bill now?
The 49 per cent FDI is long outstanding and if it happens it would be great because that would bring in the possibility of domain capital and more investments. It will enable investments into infrastructure, distribution networks etc. However, the amendment Bill has more elements to it.
The whole area of health insurance is being given a push by creating a separate insurance category and there is emphasis on the area of compensation which will now move to the regulator. The big thing irrespective of that is that the government needs to give the industry the recognition that it deserves.
I think there is a bit of benign neglect of the industry given that we are in the same category as banking and other investment categories. The industry has to be seen as a medium of pooling in small savings.
What is a major concern for the industry right now?
Surrenders have been a concern area for the industry. People have been coming and saying that they want their money back even though the value was low. That is not right because if they had stayed invested they would have benefitted as the average return is up by around 26 per cent over the last six months.
While equities are on a rise, how is the rise in investment return going to reflect in the policyholders return in case of traditional plans?
In traditional funds we have diversified our portfolio into equity and real estate without affecting its safety and security which remains top priority. Adding more asset classes allow us to generate above normal returns. That way one gets the investment benefit is in the form of bonus issuances.
Policyholders also have the possibility of getting more than the expected return on maturity. Equity is a small part of the total portfolio, even if the equity portion grows significantly the overall growth in return may only be 10-50 basis points. It also depends on expectation on persistency, mortality, investment return and expenses.
Have you announced a bonus this year?
The last time we announced it, was in 2012. If there is a sustained trend of rise in markets then, yes, we will announce bonuses.
Rise in equity markets and investor sentiments saw an increase in folios and net equity inflows for mutual funds. How is it for insurance sector in terms of agents and investors coming back?
At a broad industry level it is not so yet. There are individual stories of success and we too have seen growth but not at an industry level. If I look at the product mix, there is certainly interest coming back in the unit-linked area which witnessed a fall as a result of stock market performance and the regulatory changes.