C.S. Rao Chairman, IRDA

The insurance regulatory development authority (IRDA) has, over its five years of existence-it was created in April 2000-gained a reputation as one of India's most forward thinking regulators, across sectors. C.S. Rao, the current chairman, is the second head of IRDA after N. Rangachary, who served first as an interim IRDA chairman between 1997 and 2000 and subsequently as Chairman till June 2003. Rao responded to an e-mailed questionnaire from BT's Anand Adhikari on issues engaging the attention of the regulator.

Are you satisfied with the progress made by the private sector?

The insurance industry has been able to attract foreign direct investment of Rs 1,288.44 crore, one of the highest in the services sector. The premium collection in both life and non-life (businesses) has jumped manifold. India's overall world ranking in terms of total premium volumes improved from 23 in 2000 to 19 in 2003 and its share in the world market increased from 0.41 per cent to 0.59 per cent during the same period.

Are there any areas of concerns?

Some of the areas that require greater attention are rural, social and health sectors. The penetration in these sectors is still low given the huge potential. We would encourage the players to exploit it. Some reports of market misconduct have also reached us, which are not good for the image of the industry.

ULIP schemes have been receiving a lot of flak of late. Are you comfortable with the current structure of such schemes?

Unit-linked insurance plans (ULIPs) have been in the news lately for a variety of reasons. While some (customers) have complained of aggressive selling of unit-linked policies by insurance agents, others have drawn comparison to mutual fund schemes. However, the core issue is that since unit-linked insurance policies are akin to mutual fund schemes, the regulatory and disclosure requirements should be different from what is applicable to traditional insurance products.

As the law stands today, any policy that offers cover on the life of a person for a sum assured of Rs 1,000 or more is a life insurance contract and is governed by the provisions of the Insurance Act, 1938. The unit-linked policies, hence, are regulated by the irda. However, to prevent any regulatory arbitrage, we have examined in detail the regulations pertaining to mutual fund schemes issued by the Securities and Exchange Board of India (SEBI) and are shortly coming out with our own guidelines.

Are there any areas where the expectations (of opening up the sector) have not been met adequately?

While the industry is firmly placed on the path of long-term growth, there are some challenges and concerns that the industry and the regulator will have to face together. The industry has made tremendous strides in the area of health insurance. The premium has increased from Rs 675 crore in the financial year 2001-02 to Rs 1,732 crore in the financial year 2004-05. The number of persons covered by health insurance has also increased. However, it is nowhere near to addressing the problems of even a fraction of the 1 billion population of India. Therefore, there is still tremendous scope for the companies to expand in the area of health insurance. The law mandates that insurance companies should transact a (specified) minimum business in rural areas and cover socially weaker section of society. Companies, while meeting the minimum obligations, should also pay greater attention to this area.

Are you satisfied with the claims settlement record of the companies?

A barometer of efficient claims settlement procedures adopted is the number of customer grievances reported to us. IRDA received around 2,600 complaints during the year 2004-05. As against this, the companies have settled several lakh claims reported. This gives us comfort that the companies are prompt in settling claims.

How will de-tariffing happen in the non-life segment?

We have already laid down a road map. The non-life companies have to demonstrate to us that they have the requisite skills and infrastructure in place in terms of proper underwriting, rating support, policy terms and conditions and corporate governance.