The Insurance Regulatory and Development Authority (IRDA) on Friday said that domination of one company in the pension market could be risky and it was important for other insurance companies to participate actively, reports PTI.
"There is a structural problem that will unwind for the regulator and the industry as a whole, and will affect the country. More than 90% of all the pensions are actually in the Life Insurance Corporation of India (LIC). There is such a huge concentration in one institution. I think that is a recipe for high risk," IRDA chairman, J Hari Narayan, said at an insurance summit here.
"I think it is too much of a risk to be allowed to continue. Therefore, we must build up mechanisms which allow other companies also to participate actively in the pension market," he added.
Mr Narayan further said that pension funds should offer life annuity and companies that sell pension products should have a guaranteed capital.
"I think at the very minimum that every product that is sold as a pension product should have a capital guarantee so that the principal is safe," he said.
Pension plans are estimated to account for about 30% of the life insurance industry's business.
Meanwhile, Mr Narayan said that the regulatory body was working towards creating an exchange for re-insurance, but did not divulge when the mechanism would be in place.
"We have tried to create a platform on re-insurance, which is more transparent and more like a re-insurance exchange. Initial work is going on. What we visualise is that all matters on re-insurance will be routed only through the exchange. The advantage will be that transactions are clear and there cannot be any glitches in terms of the fine print of the policy," he said.
Mr Narayan said the insurance industry was more like a teenager going through exciting times but said there were a few challenges that needed to be addressed.
He said in case of insurance firms floated by banks, the average cost of premium was higher than that of LIC. Though there are some recommendations to allow a bank to have stakes in two insurance firms, he did not agree with this, he said.
"The problem that I have in two insurance companies operating in the same space is the premium is perverse to the bank as to which product they will be selling at branch level.
The perverse incentive at branch level is not correct. And I don't think that is a healthy practice. We cannot be having two across the same space," he said.
Mr Narayan pointed out that banks have huge potential to market insurance products.
"From the 80,000 branches across India, only 7,000 sell insurance policies. The bulk of the branches have not been used for selling insurance. We will be failing in our duty, certainly as a regulator, if we don't enable the greater use of the branch outreach," he said.
On distribution front he said that many agents were not happy as the pay was low, but said it was not possible to increase the commission.
"Is it wise to so largely front load commission? Should we look at flattening the commission differentials? At present, we cannot assess it because we are bound by the present Insurance Act," he said, adding that the amendment bill if passed could bring about some changes.
[Source]
"There is a structural problem that will unwind for the regulator and the industry as a whole, and will affect the country. More than 90% of all the pensions are actually in the Life Insurance Corporation of India (LIC). There is such a huge concentration in one institution. I think that is a recipe for high risk," IRDA chairman, J Hari Narayan, said at an insurance summit here.
"I think it is too much of a risk to be allowed to continue. Therefore, we must build up mechanisms which allow other companies also to participate actively in the pension market," he added.
Mr Narayan further said that pension funds should offer life annuity and companies that sell pension products should have a guaranteed capital.
"I think at the very minimum that every product that is sold as a pension product should have a capital guarantee so that the principal is safe," he said.
Pension plans are estimated to account for about 30% of the life insurance industry's business.
Meanwhile, Mr Narayan said that the regulatory body was working towards creating an exchange for re-insurance, but did not divulge when the mechanism would be in place.
"We have tried to create a platform on re-insurance, which is more transparent and more like a re-insurance exchange. Initial work is going on. What we visualise is that all matters on re-insurance will be routed only through the exchange. The advantage will be that transactions are clear and there cannot be any glitches in terms of the fine print of the policy," he said.
Mr Narayan said the insurance industry was more like a teenager going through exciting times but said there were a few challenges that needed to be addressed.
He said in case of insurance firms floated by banks, the average cost of premium was higher than that of LIC. Though there are some recommendations to allow a bank to have stakes in two insurance firms, he did not agree with this, he said.
"The problem that I have in two insurance companies operating in the same space is the premium is perverse to the bank as to which product they will be selling at branch level.
The perverse incentive at branch level is not correct. And I don't think that is a healthy practice. We cannot be having two across the same space," he said.
Mr Narayan pointed out that banks have huge potential to market insurance products.
"From the 80,000 branches across India, only 7,000 sell insurance policies. The bulk of the branches have not been used for selling insurance. We will be failing in our duty, certainly as a regulator, if we don't enable the greater use of the branch outreach," he said.
On distribution front he said that many agents were not happy as the pay was low, but said it was not possible to increase the commission.
"Is it wise to so largely front load commission? Should we look at flattening the commission differentials? At present, we cannot assess it because we are bound by the present Insurance Act," he said, adding that the amendment bill if passed could bring about some changes.
[Source]
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