What about insurers?

Some problems have crippled the growth of the insurance sector.

Written by Sandeep Singh | Published: September 18, 2012 2:19 am

A fortnight ago,the finance minister met the CEOs of Insurance companies and the chairman of Irda,J Hari Narayan,in a bid to understand the problems that have crippled the growth of the insurance sector. In the first meetings,the finance minister sounded keen to arrive upon some concrete solutions for the sector’s growth,considering how vital the mutual fund industry is for the Indian capital markets. This closely follows the several rounds of meetings that the ministry held with the CEO’s of asset management companies (AMCs) and the chairman of Sebi that finally culminated into a host of measures announced by Sebi on August 16,aimed at reviving the primary market and provide a fillip to the mutual fund industry.

In the meet,a section of the insurers voiced the opinion that the regulator does not have much trust on the industry and it is important to restore that. Citing an example of the appointment of secretary general of Life Insurance Council,a source close to the development said that the regulator did not take the advise of the search committee (comprising the LIC chairman and other four insurance company heads) and appointed the last person on the list despite the fact that the committee had not even recommended his name. While they will have to work out on the trust deficit,the insurers are looking for some solutions to get their business back on track. Proposals are being made to improve the compensation structure for the distribution of insurance products as there has been a sharp decline in the number of individual agents in the industry.

Insurers also are demanding for the restoration of Highest NAV Guaranteed products that has been discouraged by Irda as it even asked the insurers to not market such products. While Irda is not in favour of such products,citing issues of systemic risk in the manner that such funds are managed,sectoral experts say the industry has been very successful with such products in the past. On the contentious issue of FDI in the sector,the insurance industry is still waiting for a final decision. Some say that the government should at least allow foreign institutional investors in the category between 26 per cent and 49 per cent if they don’t want strategic investors to get there. The move will help foreign investors to participate in IPO’s of insurance firms where the strategic partner already holds 26 per cent. Now,while the capital markets regulator has given way to a lot of the demands raised by the industry in their meetings with the finance ministry and announced them last month,insurers can hope for some to come their way too.

sandeep.singh@expressindia.com

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